Here are the Stocks to Buy if the RBA raises rates, and the stocks to sell!

Investors are probably pondering the Stocks to Buy if the RBA raises rates. Because while a rate hike is not a given, it is certainly more likely than a cut right now. The warning calls have included inflationary data rising again and a couple of the banks now forecasting rate hikes, as early as February.

It would be a big shock after 12 rates hikes, then 3 cuts and would mean a lot for plenty of companies. Some may be beneficiaries, but others will be losers. Don’t take our word for it, just look at what happened during the last rate hike cycle. And remember the saying that those who don’t learn from history are doomed to repeat it.

So, here are the Stocks to Buy if the RBA raises rates, and the stocks to sell!

What are the Best ASX stocks to invest in right now?

Check our buy/sell tips

Stocks to Buy if the RBA raises rates

1. Financial stocks

It is easy to suggest the Big 4 Banks, but we’d say not so fast. Of course, the banks made more interest money than during the COVID era, but they also pay higher interest on their warehousing facilities. We’d suggest Macquarie (ASX:MQG) as a beneficary as it (inevitably) raises its deposit rates even more. It has attracted customers not just because of the high rates, but because they are offered with no strings attached (i.e. just keep your money there, no need to deposit a minimum amount and the rate does not revert after a few months).

Another name could be Challenger (ASX:CGF). Despite the stereotype that the Boomers are rich, not all of them are. And Challenger’s specialty (lifetime annuities which provide retirees with guaranteed regular income payable for life from lump sums given up front) could be just what they need.

2. Resources stocks (with low debt and favourable commodity prices)

Resource companies, especially big miners, often benefit from stronger global economic growth that drives demand for commodities. Of course, those with high levels of debt and specialising in commodities with poorly performing prices could struggle.

We’d single out Rio Tinto (ASX:RIO) as one company to look at. It specialises in iron ore, aluminium and copper. Even if copper offers more long-term growth potential, we think aluminium is the key stand out factor. This commodity has been less volatile in the past couple of years compared to copper and iron ore, is the most common metal on Earth, and just as useful as copper, but more recyclable and lighter. Companies part of the supply chain including Aurizon and Orica might thrive too, but it may depend on the proportion of their revenues coming from hot commodities.

3. Defensive consumer stocks…

…preferably with strong balance sheets and cash flows. We’d single out the major supermarkets, but particularly Coles (ASX:COL) which is significantly outperforming Woolworths. Investors may also consider insurers such as Insurance Australia (ASX: IAG) and QBE (ASX:QBE) as well as registry/financial services like Computershare (ASX:CPU).

Stocks to Sell if the RBA raises rates

1. Discretionary consumers stocks

Higher rates usually mean higher borrowing costs and weaker consumer spending — hurting sectors reliant on discretionary spending. Spending that is discretionary becomes more discretionary than ever. We’d be wary of companies such as Myer (ASX:MYR), Super Retail (ASX:SUL), Premier Investments (ASX:PMV) and Bapcor (ASX:BAP). Even Wesfarmers (ASX:WES) is one to be wary of as the owner of Bunnings, although this could be mitigated by its discount retail franchise K-Mart.

2. Real Estate stocks and REITs

Property trusts often carry significant debt, so rising rates increase financing costs and can depress valuations. This can be particularly true with respect to REITs focused on offices or other commercial spaces – we’d single out Cromwell (ASX:CMW), Dexus (ASX:DXS), GPT (ASX:GPT), Mirvac (ASX:MGR) and Centuria Office REIT (ASX:COF). Office assets often require more debt financing, have longer lease-up times, and are vulnerable to slower economic growth — all of which hurt valuations and share prices when rates rise

REITs exposed to retail (consumer discretionary specifically) can do it tough too. We’ll name Scentre Group (ASX:SCG), HomeCo Daily Needs REIT (ASX:HDN) and Vicinity Centres (ASX:VCX).

3. Growth stocks (especially tech stocks)

Technology and other long-duration growth stocks often suffer when interest rates rise, as future earnings are discounted more heavily and capital becomes more expensive. This is particularly true for companies not profitable and/or cash burning as well as companies that have gone on hot runs for years.

We’ll name TechnologyOne (ASX:TNE), MegaPort (ASX:MP1), WiseTech (ASX:WTC), Block (ASX:SGQ) and Nuix (ASX:NXL).