Yahoo Finance Four stocks you must sell because interest rates are rising
The Bank of England has raised interest rates again, by 0.75 percentage points to 3pc, in the sharpest jump in over three decades.
Rate rises across the West have spooked global stock markets. A higher cost of borrowing has affected debt-laden companies and also diminished what investors expect from fast-growing companies who promise future profits.
But some stocks are more vulnerable to rate rises than others. Telegraph Money finds out which shares look increasingly fragile as the Bank Rate continues its march upwards.
Rolls-Royce
Susannah Streeter, of the broker Hargreaves Lansdown, warned that the engineering business Rolls-Royce looked vulnerable.
“For now the company is benefiting from a fixed interest rate [on existing borrowing] so it’s not flying into a danger zone any time soon but its debt burden will limit investment into other areas of potential growth,” she said.
“There has also been very slow progress in terms of recovery when it comes to the core business of manufacturing and maintaining engines for commercial jets. More expensive long haul travel tickets may be the first to be scratched off ‘nice to have’ lists as the cost of living crisis intensifies.”
DFS
Ms Streeter said the share price of furniture retailer DFS could also struggle.
“New furniture purchases are precisely the kind of spending people are delaying while the cost-of-living escalates,” she said.
“DFS will no longer be able to rely on a pillow of cheap borrowing at a time when its net debt is rising. It’s already been one of the most operationally challenging periods in the company’s history and management is expecting a fall in sales of up to 15pc for the current financial year.”
Boohoo
Sophie Lund-Yates, also of the broker, warned that fast-fashion retailer Boohoo could sting investors.
“Boohoo is taking on more debt as it expands its distribution networks. It has a huge infrastructure bill, but is barely cash positive,” she said.
Ms Lund-Yates added that low consumer confidence could also hurt the company, as shoppers reined in their spending to cope with the cost of living crisis.
“Boohoo customers are starting to return items more often, which suggests that people are starting to realise they do not need as many ‘going out’ clothes.”
Once a stock market darling, Boohoo has lost almost half of its value so far this year.
Moonpig
Ms Streeter said the card retailer Moonpig, which listed in London in February last year and has since dropped 67pc, was also vulnerable to further falls.
"It invested heavily in marketing spend, as they needed to grow awareness about their brand," Ms Streeter said.
"But with the cost of living crisis and many consumers now being encouraged to save more by higher rates, it is going to be increasingly difficult to convince people to spend £5 on a card when you can get similar items elsewhere for much cheaper prices.”
