Fed Set to Hike Rate: 5 Financial Stocks to Bet On

The ongoing two-day FOMC meeting is concluding later today and anticipation surrounding its outcome is sky-high. The Fed is on its way to raise interest rates for the second time this year by 25 bps to 1.75-2% driven by a strengthening economy and higher inflation. Per CME group, the odds of a June rate hike are 96%. This would also mark the seventh rate hike since December 2015.

Additionally, investors are keenly waiting for the Fed’s guidance on the future rate trajectory. Many analysts are expecting four lift-offs compared to the three penciled in for this year, suggesting a faster-than-expected tightening path by the central bank. The minutes from the May meeting also revealed that some policymakers are betting on four rate hikes. This is especially true, as the economy has expanded for nine years and the United States has now entered its second-longest expansion phase since 1785 with unemployment dropping to 3.8%, the lowest level since 2000.

Additionally, inflation has been trending above the Fed’s 2% target over the past few months. The latest data showed that it accelerated at the fastest pace in more than six years in May. The Consumer Price Index rose 0.2% in May, bringing the annual inflation (12 months through May) to 2.8% -- the biggest gain since February 2012 and following a 2.5% increase in April.

However, many experts caution against the fourth rate hike and expect the Fed to leave its future rate forecast unchanged, thanks to tariff and trade threats that could hamper global growth. A surprise could also be in store as the Fed may signal an early exit from its history-making program to reduce the level of bonds on its balance sheet.

Higher interest rates will benefit the financial sector, as it would bolster profits for banks, insurance companies, discount brokerage firms and asset managers. Accordingly, we have highlighted five stocks that are expected to see smooth trading post the Fed announcement. These stocks have a Zacks Rank #1 (Strong Buy) or 2 (Buy), Growth Score of A or B and belongs to the top-ranked Zacks Industry (top 40%).

Morgan Stanley MS

This Virginia-based preeminent global financial services firm maintains leading market positions in each of its three primary businesses: securities; asset management; and credit services. The stock has seen solid earnings estimate revision of 21 cents over the past 90 days for this year and has an estimated growth rate of 31.11%. Morgan Stanley carries a Zacks Rank #2 and has a Growth Score of A. It belongs to a top-ranked Zacks industry (top 21%).

First Cash Inc. FCFS

This Texas-based operator of pawn and consumer finance stores focuses on serving cash and credit constrained consumers through its retail pawn locations, which buy and sell jewelry, consumer electronics, power tools, household appliances, sporting goods, musical instruments and other merchandise. It saw positive earnings estimate revision of 25 cents over the past 90 days for this year, with a substantial growth rate of 29.20%. The stock has a Zacks Rank #1 and a Growth Score of A. Further, it belongs to the top-ranked Zacks industry (top 16%). You can seethe complete list of today’s Zacks #1 Rank stocks here.

Orchid Island Capital, Inc. ORC

This Florida-based specialty finance company invests in residential mortgage-backed securities (RMBS) in the United States. The stock saw positive earnings estimate revision of four cents over the past 90 days for this year with a growth rate of 77.38%. It has a Zacks Rank #2 and falls under the top-ranked Zacks industry (top 22%). It also flaunts a top Growth Score of A.

The Progressive Corporation PGR

This Ohio-based company provides personal and commercial auto insurance, residential property insurance, and other specialty property-casualty insurance and related services primarily in the United States. The stock solid positive earnings estimate revision of 41 cents over the past 90 days for this year with a growth rate of 54.75%. It carries a Zacks Rank #2 and falls under the top-ranked Zacks industry (top 40%). Also, it flaunts a top Growth Score of A.

Summit Financial Group, Inc. SMMF

This West Virginia-based company operates as a financial holding company for Summit Community Bank, Inc. that provides community banking and other financial services to individuals and businesses primarily in the Eastern Panhandle and South Central regions of West Virginia and the Shenandoah Valley, and Southwestern regions of Virginia. The stock saw positive earnings estimate revision of 10 cents over the past 90 days for this year, with a substantial growth rate of 19.05%. Summit Financial has a Zacks Rank #2 and a Growth Score of B. It belongs to the top-ranked Zacks industry (top 14%).

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Morgan Stanley (MS) : Free Stock Analysis Report
 
Orchid Island Capital, Inc. (ORC) : Free Stock Analysis Report
 
The Progressive Corporation (PGR) : Free Stock Analysis Report
 
First Cash, Inc. (FCFS) : Free Stock Analysis Report
 
Summit Financial Group, Inc. (SMMF) : Free Stock Analysis Report
 
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