U.S. markets open in 31 minutes
  • S&P Futures

    3,707.75
    -49.00 (-1.30%)
     
  • Dow Futures

    29,680.00
    -302.00 (-1.01%)
     
  • Nasdaq Futures

    11,342.00
    -199.75 (-1.73%)
     
  • Russell 2000 Futures

    1,736.60
    -21.50 (-1.22%)
     
  • Crude Oil

    89.22
    +0.77 (+0.87%)
     
  • Gold

    1,703.20
    -17.60 (-1.02%)
     
  • Silver

    20.27
    -0.39 (-1.86%)
     
  • EUR/USD

    0.9752
    -0.0043 (-0.44%)
     
  • 10-Yr Bond

    3.8860
    +0.0600 (+1.57%)
     
  • Vix

    30.37
    +1.82 (+6.37%)
     
  • GBP/USD

    1.1133
    -0.0036 (-0.32%)
     
  • USD/JPY

    145.0610
    -0.0070 (-0.00%)
     
  • BTC-USD

    19,605.62
    -607.62 (-3.01%)
     
  • CMC Crypto 200

    446.31
    -16.82 (-3.63%)
     
  • FTSE 100

    6,988.00
    -9.27 (-0.13%)
     
  • Nikkei 225

    27,116.11
    -195.19 (-0.71%)
     

Fight a Hawkish Fed With These 3 Top Financial Stocks

·4 min read

Eyes are entirely focused on the FOMC’s meeting this week, where the consensus is that the Fed will be cranking interest rates by 75 basis points.

The Fed’s pivot to a hawkish nature in 2022 has been a thorn in the side of stocks. However, the financial sector stands to be positively impacted by the tightening cycle.

During a higher-interest rate environment, profit margins can expand for those in the sector, particularly insurance companies and banks.

Three highly-ranked stocks in the Zacks Financial Sector – Bank OZK OZK, Ares Capital Corporation ARCC, and Unum Group UNM – could all be options for investors to consider in fighting back against a hawkish Fed.

Below is a chart illustrating the share performance of all three companies in 2022, with the S&P 500 blended in as a benchmark.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

As we can see, all three stocks have already widely outperformed the general market in 2022, undoubtedly a positive.

For the cherry on top, all three stocks sport a Zacks Rank #1 (Strong Buy).

Let’s take a deeper dive into each one.

Unum Group

Unum Group provides disability insurance, long-term care insurance, life insurance, and employee-paid group benefits and related services.

Analysts have been overwhelmingly bullish over the last several months, pushing their earnings estimates higher across all timeframes.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

UNM carries a very favorable growth profile; the Zacks Consensus EPS Estimate resides at $6.11 for FY22, reflecting a stellar double-digit 40% Y/Y uptick.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

In addition to rising earnings estimates and supercharged bottom line growth, UNM’s annual dividend yields a rock-solid 3.2% paired with a five-year annualized dividend growth rate of 6.2%.

Further, the company’s yield is much higher than its Zacks Financial Sector average of 2.4%.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

For the icing on the cake, UNM shares are cheap; the company’s 6.7X forward earnings multiple represents a staggering 54% discount relative to its Zacks Sector.

UNM carries a Style Score of an A for Value.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Bank OZK

Bank OZK offers financial products and services, including savings accounts, personal and business loans, debit and credit cards, mortgages, cash management, online banking services, and many others.

OZK’s earnings outlook has turned visibly bright over the last several months.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

OZK has been on a blazing-hot earnings streak, exceeding both revenue and earnings estimates in each of its previous nine quarters. Just in its latest print, Bank OZK penciled in an 8% bottom line beat and a 2.4% revenue beat.

Bank OZK is dedicated to rewarding its shareholders – the company has upped its dividend payout an almost unbelievable 20 times over the last five years, paired with a 12.4% five-year annualized dividend growth rate.

Further, OZK’s 3% annual dividend yield handily beats its Zacks Sector average.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

OZK shares could also be considered undervalued – the company’s 9.4X forward earnings multiple sits nicely below its five-year median of 10.8X and represents a 35% discount relative to its Zacks Sector.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Ares Capital Corporation

Ares Capital Corporation is a specialty finance company offering customized financing solutions, ranging from senior-debt instruments to equity capital, focusing on senior secured debt.

Analysts have pushed their bottom-line outlook substantially higher over the last several months.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

ARCC’s bottom line growth is worth highlighting – the Zacks Consensus EPS Estimate for the company’s current fiscal year (FY22) resides at $1.93, good enough for a sizable 16.3% Y/Y uptick.

And in FY23, earnings are projected to climb a further double-digit 10%.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Ares Capital’s dividend metrics would make any income-focused investor thrilled; ARCC’s annual dividend yields a massive 9.1%, nowhere near its Zacks Sector average.

In addition, the company has upped its dividend payout five times over the last five years.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

ARCC carries a 9.8X forward P/E ratio, nicely beneath its 10.4X five-year median and representing an attractive 32% discount relative to its Zacks Sector.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Bottom Line

With the Fed fully pivoting to a hawkish nature, it spells bad news for many stocks. Still, those in the financial sector can realize higher profit margins, providing a more defensive approach for investors.

For those searching for strong stocks in the realm, Bank OZK OZK, Ares Capital Corporation ARCC, and Unum Group UNM all fit the criteria and could all be considerations.

All three stocks sport the highly-coveted Zacks Rank #1 (Strong Buy) paired with solid dividend payouts, undoubtedly major perks that instill confidence.


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Unum Group (UNM) : Free Stock Analysis Report
 
Ares Capital Corporation (ARCC) : Free Stock Analysis Report
 
Bank OZK (OZK) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research