Fed to Raise Rates Big Again in July: 6 Warren Buffett Stocks Could Benefit

If any investor has stood the test of time, it is Warren Buffett. For years, the “Oracle of Omaha” has had a rock-star-like presence in the investing world. His annual Berkshire Hathaway shareholders meeting draws literally thousands of loyal fans who are investors. Known for his long buy-and-hold strategies and his massive portfolio of public and private holdings, he remains one of the preeminent investors in the world.

With the market posting one of the worst first-half years in decades and inflation raging at the highest levels in 40 years, something is going to have to give at some point. What seems like a given now is that the Federal Reserve will raise interest rates by another 75 basis points in July.

The chatter across Wall Street from economists, equity strategists and, of course, the talking head financial news teleprompter readers is that when it comes to a recession, it is not a matter of if anymore. It is a matter of when. The definition of a recession is two consecutive quarters of negative gross domestic product. First-quarter GDP decreased at an annual rate of 1.5%. Should that happen in the second quarter, that would technically place the economy in recession now. The second-quarter GDP numbers will be released this week.

While rising interest rates can hurt most companies, as the cost of capital jumps, input pricing pressures hurt margins and, more often than not, the increases have to be passed along. Some companies, especially banks and other financials, can thrive as interest rates and profitability are connected, with banks benefiting from higher rates when generating net interest income. This income is the difference between revenues generated by interest-bearing assets and the cost of servicing liabilities. For banks, the assets typically include commercial and personal loans, mortgages, construction loans and investment securities. The liabilities consist primarily of customers’ deposits.

We screened the Berkshire Hathaway portfolio looking for companies that will benefit from yet another big federal funds rate increase. We found six financial stocks that look like solid ideas for the second half of what has been a rough 2022. While all are rated Buy at major Wall Street firms, It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

American Express

This stock has backed up recently and is offering the best entry point since April of last year. American Express Co. (NYSE: AXP) provides charge and credit payment card products and travelelated services worldwide. Its products and services include payment and financing products network services accounts payable expense management products and services, and travel and lifestyle services.

The company’s products and services also comprise merchant acquisition and processing, servicing and settlement, point-of-sale marketing and information products and services for merchants, and fraud prevention services, as well as the design and operation of customer loyalty programs. It sells its products and services to consumers, small businesses, midsized companies and large corporations through mobile and online applications, third-party vendors and business partners, direct mail, telephone, in-house sales teams and direct response advertising.

Shareholders receive a 1.44% yield. Morgan Stanley has a $223 price target on American Express stock. The consensus target is $197.20, and shares closed over 3% higher on Friday at $146.15.