The US Federal Reserve is widely expected to announce an accelerated tapering of bond purchases by the end of today, paving the way for faster rate hikes next year in an effort to stem the upward trend.
Indeed, Investing.com's Fed Rate Monitor Tool shows that money markets now expect the US central bank to raise interest rates by 25 basis points as early as May 2022. Taking this into account, we highlight below three tried-and-true year-to-date winners that are expected to outperform in the coming months, even as the expected tightening of monetary policy by the Fed materializes.
1. Charles Schwab
Achievements to date: +53.3%
Market Capitalization: $152.7 Billion
Shares of Charles Schwab (NYSE:), which are up more than 53% so far amid strong investment banking activities, look poised for further gains in the coming months as investors brace for higher interest rates in 2022.
The Westlake, Texas-based financial services company – which bought rival TD Ameritrade last year – offers retail banking, commercial banking, an electronic trading platform and asset management advisory services to both individual and institutional clients. It had $7.1 trillion in total customer assets as of September 30.
SCHW hit a record high of $84.49 on October 26 and ended Tuesday's session at $80.79.
As one of the largest banking institutions in the country, Schwab will generate higher net income when rates rise. In addition, brokerage firms typically benefit from higher fees amid the uptick in trading activity due to Fed-induced volatility.
Charles Schwab reported impressive third quarter results on Oct. 15 in both revenue and earnings due to a strong increase in client assets, as well as strong demand for his investment-related products.
The broker posted year-over-year earnings growth of 75% to $0.84 per share, while revenue grew 87% from a year earlier to $4.69 billion. Perhaps of greater significance, the company said net income totaled $1.53 billion, up 119% from $698 million in the same period last year, while net interest income rose 51% to $2.03 billion.
As a sign of good fortune for the future, investors opened more than a million new brokerage accounts for the fourth straight quarter, bringing Schwab's new investment accounts for the year to 6.0 million.
2. Comerica
Performance so far: +49.9%
Market Capitalization: $10.9 Billion
Comerica (NYSE:), one of the country's largest regional banks, performed very well in the financial sector this year, benefiting from an improving economy, solid credit growth and reduced credit loss exposure.
The Dallas, Texas-based financial services company, which manages nearly $85 billion in total assets, provides commercial banking, consumer banking and wealth management services primarily in Texas, California, Michigan, Arizona and Florida. ]
Shares of CMA, which started the year at $55.86 and soared all the way to a record high of $91.62 on Nov. 24, closed at $83.73 last night. Comerica has seen its shares rise nearly 50% year-to-date, much higher than the comparable returns of both the .
Given the projected rise in short-term interest rates in the Treasury market that would result from aggressive Fed betting, CMA stocks look like a solid investment going into 2022.
Higher rates and yields tend to increase the return on interest that banks earn from their loan products, or net interest income – the difference between the income generated from the interest earned on assets such as loans, mortgages and securities, on the interest paid to their depositors.
Comerica reported earnings and earnings that were easy as it delivered Q3 results on October 20, driven by strong deposit growth and robust fee income. It also provided optimistic guidance for the last quarter of the year and beyond.
More importantly, the regional banking powerhouse has stepped up efforts in recent months to return more cash to shareholders in the form of higher dividend payments and share buybacks. Comerica will currently pay a quarterly dividend per share of $0.68 when it goes ex-dividend on January 1, 2022, yielding an annual return of 3.32%.
3. NVIDIA
Year-to-date performance: +117.1%
Market Cap: $708.4 Billion
Widely regarded as one of the world leaders in providing high-performance graphics processing units (GPUs) for game consoles, data centers and self-driving cars, NVIDIA (NASDAQ:) is one of the best performers this year thanks to rising demand for its chips.
Additionally, as the world's largest video game chip maker, NVIDIA has stepped up its efforts in recent months to become a major player in the emerging metaverse space.
After hitting a record $346.47 on Nov. 22, NVDA stock, which is up about 117% so far, ended at $283.37 yesterday. At its current level, the Santa Clara, California-based company is the seventh most valuable company trading on the US stock exchange.
While NVIDIA is generally defined as a growth stock, it is not as sensitive to a rise in interest rates as other tech companies because of its reliably profitable and cash-rich business model, making it a solid bet if the Fed tightens policy
As a sign of how well NVIDIA's business has performed in the current environment, the chipmaker has filed earnings reports that have surpassed Wall Street's earnings and revenue forecasts in every quarter this year.
For the most recent quarter, NVIDIA announced 60% growth to $1.17 per share on Nov. 17, while revenue increased 50% to $7.1 billion. Gaming, NVIDIA's largest segment, reported revenue of $3.2 billion in the third quarter, up 42% from the same period last year. Data center sales, another bright spot for Nvidia, improved 55% year over year to $2.9 billion.
Looking ahead, NVIDIA's guidance for the current quarter ending in January made it clear that the chip giant does not expect a slowdown in the coming months, with expected revenue growth of 48% year-over-year to a record $7.4 billion.
