Sumary of 5 Stocks to Play Low Interest Rates—While They Last:
- Some stocks can benefit from that, even if yields eventually move higher again.
- The action in Treasuries has brought corporate bond yields down as well.
- Some companies can take advantage of the low yields by borrowing money at lower rates and using the proceeds to buy back stock—making their shares more attractive to investors.
- Adding debt at a lower interest rate usually lowers a company’s overall cost of capital, the minimum rate of return equity investors require to own the shares.
- That boosts valuations, while the share buybacks increase earnings per share because they reduce the number of shares on the market.
- “For corporates, the answer is obvious to us: issue debt and repurchase shares,” writes Chris Harvey, head of equity strategy at Wells Fargo.
- ” Five stocks already in Wells Fargo’s buyback portfolio that could employ such a strategy to buy back even more shares are Starbucks (ticker: SBUX), Newell Brands (NWL), Amgen (AMGN), McKesson (MCK), and Cardinal Health (CAH).