06-17-2021, 09:41 AM
(06-17-2021, 09:13 AM)stockguru Wrote: Won't the big dividend payers suffer now with rising interest rates on the way? Banks, brokerages and industrials should fare well.
I'm wondering if getting into growth stocks like GOOG and FB is the way to play now?
Consensus now is no rate hikes until 2023, which is still pretty far off even in forward-looking stock market terms.
If any sort of meaningful inflation occurs, companies that have a lot of overhead and fixed costs tied to commodities/inputs that inflate (like corn, soybeans or crude oil) seem like they wouldn't be the best bet. Sure, they can raise their prices to match inflation, but that's probably about all they will be able to do is keep pace (hopefully). Really amazed at the run-up in my ADM, as it seems overdone. Will probably kick myself for not selling when it drops back into the 30s for several years while the rest of the market overheats.
Growth tech companies with real and growing free cash flows to reinvest in the business should probably continue to outperform and enjoy higher average earnings multiples, because growth. Software companies don't typically have a lot of overhead other than staff. Any price hikes for the end product to match the inflationary environment are essentially just free additional revenue. Young tech companies that are still reliant on cheap money to fund them while they burn through cash to get started will probably see the largest multiple compression in the tech space. They will be affected most by any rise in rates. I think it is very unlikely that interest rates rise to a point where any serious investing trend will develop that favors 10-year treasury notes over blue chip tech companies with consistent double-digit YoY growth figures.
In an inflationary environment, the best companies that do the most for their shareholders will tend to continue being the best companies that do the most for their shareholders. Clean balance sheets and meaningful, sustained revenue/earnings growth are what drive success in any type of company, whether categorized as growth, value, or DGI. The trick is trying to find ones where you aren't paying $50 for $1 of this year's earnings.