Back to top

Image: Bigstock

Rock-Bottom Rates to Stay Until 2023: 4 Investing Ideas

Read MoreHide Full Article

As widely expected, the Fed held interest rates steady at a near-zero level in its latest meeting. U.S. interest rates have been this low since March 2020. The central bank said that it will continue to purchase $120 billion in government bonds each month. The Fed will keep interest rates at zero at least through 2023.

Despite the Fed’s promise to keep rates at the rock-bottom level for a longer period, bond yields rose as Powell did not indicate the expected increase in Treasury purchases, as quoted on CNBC. The benchmark U.S.- treasury yield rose to 0.69% on Sep 16 from 0.67% recorded on Sep 11.

In the Fed’s latest projections, core inflation is expected to stay low and not reach the Fed’s 2% target until 2023. The labor market is expected to improve to the point where unemployment is likely to be at 4% in 2023, falling short of the longer run rate of 4.1%.

The unemployment rate is likely to be 5.5% and 4.6% for 2021 and 2022, respectively. Thankfully, both figures came below the June projections of 6.5% and 5.5%, respectively. Real GDP growth is expected to be 4% in 2021, 3% in 2022 and 2.5% in 2023. GDP growth rate projections, however, came below the June projections of 5% for 2021 and 3.5% for 2022.

How to Play the Guidance?

We all know that lower rates for longer mean gains in equities, especially if there is less coronavirus-related hospitalization and stronger vaccine hope. Most recently, biotech company Eli Lilly and Company (LLY) said its antibody therapy has been found to lower the SARS-CoV-2 viral load in newly infected patients as well as lessen hospitalisation risk.

The news of AstraZeneca’s (AZN) resumption of its phase 3 trial of its COVID-19 vaccine, one of the prime candidates in the vaccine race, should also keep markets charged-up. But then, jobless claims have been rising in recent weeks, which is a concerning factor.

Against this backdrop, investors can find the below-mentioned investing areas gainful in the near term.

High Dividend

Many investors may land on high dividend-paying stocks, especially those that are offering benchmark-beating yields. To do so, investors can play the Zacks Rank #1 (Strong Buy) intermodal freight container leasing and management company CAI International Inc. (CAI - Free Report) (yields 3.86% annually and has gained 21.6% in the past four weeks). Apparel retailer Zacks Rank #1 Guess, Inc. (GES) also yields a solid 3.24% and has added 21.8% in the past one month.

Low Volatility 

Though markets remained more-or-less steady in recent months, “there is still some caution in markets because U.S. virus numbers appear to be picking up again in some states,” said Seema Shah, chief strategist at Principal Global Investors, as quoted on Reuters. With this, opportunities for low-volatility stocks remain alive, no matter how high stocks and ETFs hit.

So, one can bet on stable or low-volatility stocks like Zacks Rank #1 farm equipment maker Deere Company (DE - Free Report) .It has a Beta of 0.99X, yields 1.38% annually, and 5-year historical sales and earnings growth of 9.68% and 18.49%, respectively. Shares have added 15% past month.

Investors can also bet on Zacks Rank #2 (Buy) Motorola Solutions, Inc. (MSI). It has a Beta of 0.73X, yields 1.62% annually, and 5-year historical sales and earnings growth of 8.36% and 21.89%, respectively. Shares have gained 4.33% past month.

Dividend Growth

Common stocks of companies that have a record of increasing dividends over time call for a quality approach. The Zacks Rank #1 homebuilder M.D.C. Holdings, Inc (MDC) has reported 5-year historical EPS growth of 33.94%, 5-year dividend growth of 11.73% and offered a 5-year dividend yield of 3.72%. Shares have gained about 4% past month.

Zacks Rank #2 REIT NexPoint Residential Trust, Inc. (NXRT - Free Report) looks to be another good bet. The company has reported 5-year historical EPS growth of 13.38% and 5-year dividend growth of 14.82%, and offers a 5-year dividend yield of 3.67%. Shares are up about 7.6% in the past month.

Small Caps

Low rates are great for small-cap stocks especially as the section is cash-strapped. Moreover, signs of economic recovery would favor this otherwise beaten-down zone.

Investors can play the Zacks Rank #1 Ellington Financial LLC (EFC - Free Report) which is engaged in acquiring and managing mortgage-related assets. The $573.9 million market-cap company yields as high as 8.24% and has added 8.2% past month.

The Zacks Rank #1 Suburban Propane Partners, L.P., company is a publicly traded Delaware limited partnership engaged, through subsidiaries, in the retail and wholesale marketing of propane and related appliances and service. The stock has a market cap of $856.38 million. The fund has gained 5.5% past month. 

Zacks’ Single Best Pick to Double

From thousands of stocks, 5 Zacks experts each picked their favorite to gain +100% or more in months to come. From those 5, Zacks Director of Research, Sheraz Mian hand-picks one to have the most explosive upside of all.

With users in 180 countries and soaring revenues, it’s set to thrive on remote working long after the pandemic ends. No wonder it recently offered a stunning $600 million stock buy-back plan.

The sky’s the limit for this emerging tech giant. And the earlier you get in, the greater your potential gain.

Click Here, See It Free >>