Two Picks That Can Outperform a Rate Hike

09/15/2015 9:00 am EST

Focus: MLPS

Michael Berger

President & Founder,

A subset of investors would be adversely affected if the Federal Reserve does, in fact, increase interest rates, so Michael Berger, of, highlights an industrial stock and an MLP that he expects to both outperform the market after a rate hike.

With no significant economic data being released before the Federal Reserve’s next meeting, market volatility will be the main sentiment indicator prior to the meeting. Although most economists expect to see the Federal Reserve increase interest rates, many traders are betting against a rate hike.

If the Federal Reserve increases interest rates, this subset of investors would be adversely affected and it could cause a market correction. Investors need to be cautious and be focused on companies that have strong balance sheets. These quality stocks are going to outperform the market during the three months following an initial rate hike.

When the Federal Reserve conducted its first rate hike in 1994, 1999, and 2004, companies that had stronger balance sheets outperformed the market by 5%, on average. Two stocks we expect to outperform the market after a rate hike include:

Progressive Waste Solutions (BIN) possesses an unrivaled Canadian franchise and possesses the highest margins in the industrial sector. The company’s United States operations is anchored by its well positioned southern segment and BIN does not directly participate in the Exploration & Production market. The company is exposed to operations in oil & gas-centric economies such as Texas and western Canada. We see a potential for BIN to win the largest disposal contract in New York City, which could significantly improve its EBITDA. During 2015, BIN has seen improving margins and we expect margins to continue to improve. BIN is focused on generating greater free cash and higher ROIC.

Antero Midstream Partners LP (AM) offers investors a 2.8% dividend yield and its assets are strategically located in the Utica and Marcellus basin, which is levered to the price of natural gas, not oil. AM has a supportive relationship with Antero Resources (AR) and a visible growth backlog that should facilitate 25-35% growth in cash distribution for several years. As of March 31, 2015, the company had no debt and $1.2 billion in existing liquidity. In short, Antero Midstream is the best play on booming Marcellus gas production potential and associated infrastructure constraints.

Michael Berger, Founder and President,

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