Buy these 15 stocks set to beat the market and surge even as rising bond yields cause tantrums elsewhere, Credit Suisse says

  • Credit Suisse says the 10-year Treasury yield could hit 2%, a “problem level” for stocks.
  • It names the “Buy”-rated stocks with the strongest connection to the performance of the 10 year.
  • A surge in bond yields last week brought about the stock market’s worst week in almost 12 months.
  • Visit the Business section of Insider for more stories.

Did it feel like the market turned upside down last week?

Over the last few days, stocks went through one of their worst stretches since last March. A strong jobless claims report last Thursday extended the sudden rise in bond yields as investors wondered if the economy’s revival would lead to greater inflation, and to higher interest rates if the Federal Reserve ends its stimulus programs.

The spike in bond yields caused a sell-off in high-growth stocks, like tech, that have been at the forefront of the market for more than a decade. A big contingent of investors have said for years that a sustained increase in interest rates would be bad news for those types of stocks, which dominate major indexes.

High-dividend bond proxies like real estate companies also slumped last week.

But the most significant questions are where this is going, and whether it’s going to be a short blip or a long-term problem for stocks.

Credit Suisse analysts say the “problem level” for stocks is around 2%. That would mean stocks aren’t in the danger zone yet, but suddenly they’re not so far off.

“On the global strategy team we can see the 10 year potentially rising to 1.8-2%,” wrote a team of analysts including Andrew Garthwaite and Robert Griffiths. 

That’s because of the gap between manufacturing growth and the amount of growth that’s priced into yields right now, the possibility that the economy will expand more than expected this year thanks to ongoing stimulus efforts, and the increase in US wealth and consumer savings over that time.

The contours of a rising yield trade are pretty well-known. Banks do well as yields rise because lending becomes more profitable, and they make more money from interest. Greater inflation sends commodity prices higher, which helps energy companies.

Yields tend to rise that way during periods of strong economic growth, which means consumer spending — good news for consumer-oriented companies as well.

But those are general guidelines. To help investors pick the best stocks for that environment, the Credit Suisse analysts screened the firm’s “Buy”-rated stocks to find the ones whose five-year performance correlates most closely with the performance of the 10-year US Treasury note.

Those stocks are ranked here from lowest to highest based on the strength of that correlation.

15. Synchrony Financial

Ticker: SYF

Sector: Financials

Market cap: $23.4 billion

Correlation to 10-year yield: 60%

Source: Credit Suisse

14. EOG Resources

Ticker: EOG

Sector: Energy

Market cap: $42.1 billion

Correlation to 10-year yield: 61%

Source: Credit Suisse

13. Citigroup

Ticker: C

Sector: Financials

Market cap: $142.5 billion

Correlation to 10-year yield: 62%

Source: Credit Suisse

12. Discover Financial Services

Ticker: DFS

Sector: Financials

Market cap: $30.0 billion

Correlation to 10-year yield: 62%

Source: Credit Suisse

11. Wells Fargo

Ticker: WFC

Sector: Financials

Market cap: $158.0 billion

Correlation to 10-year yield: 62%

Source: Credit Suisse

10. Royal Caribbean Cruises

Ticker: RCL

Sector: Consumer discretionary

Market cap: $22.9 billion

Correlation to 10-year yield: 63%

Source: Credit Suisse

9. Goldman Sachs

Ticker: GS

Sector: Financials

Market cap: $113.5 billion

Correlation to 10-year yield: 64%

Source: Credit Suisse

8. American Financial Group

Ticker: AFG

Sector: Financials

Market cap: $9.8 billion

Correlation to 10-year yield: 64%

Source: Credit Suisse

7. Morgan Stanley

Ticker: MS

Sector: Financials

Market cap: $125.7 billion

Correlation to 10-year yield: 66%

Source: Credit Suisse

6. ConocoPhillips

Ticker: COP

Sector: Energy

Market cap: $73.9 billion

Correlation to 10-year yield: 66%

Source: Credit Suisse

5. Delta Air Lines

Ticker: DAL

Sector: Industrials

Market cap: $31.6 billion

Correlation to 10-year yield: 66%

Source: Credit Suisse

4. Voya Financial

Ticker: VOYA

Sector: Financial

Market cap: $7.6 billion

Correlation to 10-year yield: 67%

Source: Credit Suisse

3. Capital One Financial

Ticker: COF

Sector: Financials

Market cap: $57 billion

Correlation to 10-year yield: 73%

Source: Credit Suisse

2. Bank of America

Ticker: BAC

Sector: Financials

Market cap: $313.4 billion

Correlation to 10-year yield: 76%

Source: Credit Suisse

1. JPMorgan Chase

Ticker: JPM

Sector: Financials

Market cap: $466.7 billion

Correlation to 10-year yield: 77%

Source: Credit Suisse

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