“Dear Jay Powell: It’s the supply chain, stupid” – was my simple note to the Fed last month as it struggled to grapple with the structural inflation we’re all feeling these days.
Seems like the message got through, because now everyone is expecting the Fed to hike rates in 2022; it’s come out and said as much.
In fact, I think higher interest rates will largely define the markets of 2022 – along with regulatory changes, China’s impending “Lehman moment,” the retail trader, and some other forces we’re talking about in Total Wealth.
It’s interest rates that are looming largest on my radar screen right now. They’re going to be painful for a lot of U.S. companies, there’s no doubt. But higher rates are going to be a huge boost for some well-capitalized bank’s stocks, and I’ve got the very best one picked out for us.
I recommended my readers put $100 to work here. In fact, I think everyone should…
Rising Rates Aren’t Necessarily a Bad Thing
So, higher rates are coming. They’re not even here yet, but the specter of increasingly expensive dollars is already starting to drive an increase in profit-taking. That causes sell-offs, of course, but over time, it creates discrepancies in valuations – particularly for the “classic” growth stocks and Big Tech names.
But rising rates are usually good for the financials, particularly in an otherwise strong economy, and particularly for my favorite flavor of financial stock right now: the banks. Profit margins there fatten up nicely during times of rising rates.
Of course, this is hardly a secret – a quick survey of some of the biggest bank stocks shows…
Wells Fargo & Co. (NYSE: WFC) is hitting new highs. Bank of America Corp. (NYSE: BAC) is hitting new highs. JPMorgan Chase & Co. (NYSE: JPM) is closing in on highs.
In other words, buy any of those stocks, and you’re paying peak price for them. As everyone is looking to financials – as they’re looking to banks to play rising interest rates – the others are going higher and higher and higher. That said, it’s not necessarily a mistake to buy any of these names; they’re probably going to go much higher.
The maximum upside potential is in Citigroup Inc. (NYSE: C). It’s been a laggard – and that’s precisely why I like it.
But Citi shares can be had for less than $70 right now – less than $68, in fact. I love that price. At the end of May and beginning of June, Citigroup stock was trading above $80, and rising interest rates are going to give it the juice to return to and probably even break those 52-week highs. So you’re looking at a minimum of 15% upside from here, and probably a lot more as the Fed boosts rates.
I think you can get at a really good price right now. Citi’s trading around $65.60. Its high back in June was about $80 and I think $0.29 – thereabouts. So, it’s down about 18% from its highs – just in June.
I think it’s gonna make that up and we’ll see new highs. At least a 22% gain.
The other thing I love about Citi is: It pays you a 3.10% dividend yield… Meaning, if you buy in, you’ll be getting paid to hold Citi. Any time I get paid to hold a stock that I expect to appreciate by at least 20%, that’s an all-day kind of trade for me.
And I’m not saying that 20% is the upside limit on Citi. I think Citi could go a lot higher.
— Shah GilaniTen hot stocks with massive upside potential [sponsor]
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Source: Money Morning