The Toronto Star reports in its Monday, April 30, edition that while higher interest rates are bad for some companies they are good for
Canadian banks. The Star's Ellen Roseman writes that unlike other high-yield stocks, banks can improve their profit margins as rates rise.
"Banks may be able to lend money at higher interest rates while still paying little or nothing on deposits," says equity strategist Stephane Rochon. He says, "Barring a collapse in economic and lending activity, investors thirsty for income should consider the purchase of Canadian bank stocks."
Life insurance companies also benefit from rising rates. They invest policyholders' premiums in bonds and use the interest to cover claims. The funds left over translate into profits.
As rates rise, life insurance companies can reinvest the proceeds from maturing bonds into higher-yielding securities, thus earning extra profit.
Mr. Rochon says investors anticipating higher long-term interest rates should look at stocks such as Manulife Financial or Great-West Lifeco. BCV Asset Management chief investment officer Tony Demarin recommends buying Canadian banks, Canadian National Railway, Enbridge, TransCanada, Tim Hortons and Saputo.
© 2013 Canjex Publishing Ltd. All rights reserved.