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The Zacks Analyst Blog Highlights: BankFinancial, Morgan Stanley, Berkshire Hathaway, American Equity Investment Life Holding and WSFS Financial


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For Immediate Release

Chicago, IL - June 15, 2018 - Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include BankFinancial Corp. BFIN , Morgan Stanley MS , Berkshire Hathaway Inc. BRK.B , American Equity Investment Life Holding Co. AEL and WSFS Financial Corp. WSFS .

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

Here are highlights from Thursday's Analyst Blog:

Fed Lifts Rates 2 nd Time in 2018: Winners and Losers

The Federal Reserve lifted a key U.S. interest rate for the second time this year and signaled at a slightly more aggressive plan to tighten monetary policy in the near term. Interest rates rose again as the U.S. economy heated up and inflation crawled higher.

With the Fed hiking rates and aiming for more increases this year, banks, insurers and brokerage firms stand to gain. Meanwhile, utilities, homebuilders and gold miners are likely to lose.

Fed Gets Slightly More Hawkish

The Fed, as widely expected, raised its benchmark federal funds rate by a quarter percentage point to a range of 1.75% to 2%. Eight of the 15 Fed officials said that they expect interest rates to increase at least four times this year, up from seven in the March Fed rate meeting. The Fed's dot plot, in fact, indicated that policy makers predict two additional rate hikes this year for a total of four increases instead of three as planned earlier.

By the end of this year, the median forecast for the federal funds rate stands at 2.4%, compared with the March forecast of 2.1%. Beyond this year, the policy-setting Federal Open Market Committee predicts that it will hike rates three times next year and one more time the following year to propel its benchmark rate up to 3.4%.

Fed's View on Economy & Inflation

The Fed's decision reflected an economy that is improving by the day. After all, the jobless rate is at its lowest since 2000, wages are going up and consumers are pretty confident. Fed Chairman Jerome Powell said that "most people who want to find jobs are finding them, and unemployment is low." Lest we forget, for the first time in nearly 20 years, there are more job openings in the United States than workers to fill the positions.

Fed officials also believe that the economy doesn't require much help at the moment. Fed has removed the language that said the central bank expected federal funds rate "to remain, for some time, below levels that are expected to prevail in the longer run."

Powell, in the meantime, added that the Fed is comfortable with the comeback of inflation. The Fed's preferred gauge of inflation, known as the personal consumption expenditures price index (PCE), has already touched the central bank's 2% target during March and April. The Fed expects inflation to remain higher than 2% in the next two years. (read more: 5 Top Stocks to Beat the Fastest Rise in Inflation in 6 Years ).

Winners & Losers in a Rising Rate Setting

With the Fed raising interest rates and hinting at faster hikes, certain sectors stand to gain, while some sure have a lot at stake.

Let's take a look at the sufferers first -

Utilities

Investing in utilities won't be a good idea in a rising interest rate scenario. Utilities are capital intensive and funds generated from internal sources do not always meet requirements. Hence, these companies have towering debt loads. Low interest rates help them pay off debts and book profits.

But higher rates along with an escalating debt level, for that matter a steep debt/equity ratio, impact the credit ratings of these utility operators. If the credit ratings go down, a company will find it difficult to borrow funds from the markets at reasonable rates, leading to a rise in cost of operations.

Home Construction

Higher federal funds rate will make it more expensive for banks to borrow money, which eventually translates into higher borrowing rates for consumers. This is surely a dampener for real estate activities and losers, affecting construction-related businesses, like homebuilders.

Mortgage rates are already on the rise. On average, the 30-year fixed mortgage rate climbed to 4.66% last month, the highest in seven years, before dropping slightly in recent weeks.

Gold

Rising rates diminish the appeal of precious metals like gold because the commodity doesn't offer yield as high as other safe haven assets like government bonds. Higher interest rates also boost the dollar and dent demand for dollar-denominated commodities.

Following the Fed's announcements, the ICE Dollar Index that measures the value of dollar against a basket of six major currencies, was up 0.1% to 93.898.

Now, which areas are set to make the most of a rate hike? Of course, financials!

Banks

Banks are definitely the go-to rate trade now. As a rule, higher interest rates boost bank profits as they increase the spread between what banks earn by funding longer-term assets, such as loans, with shorter-term liabilities.

National banks like Bank of America are very rate-sensitive and have consistently seen earnings rise on a quarter-point rate hike.

Insurers

Very few companies root for a rate hike as much as those in the insurance industry. And why not? The relationship between interest rates and insurance companies is linear and straightforward, meaning the higher the rate, the greater the growth.

Insurers derive their investment income from investing premiums, which are received from policyholders in corporate and government bonds. Yields and coupons on these bonds rise in response to a rise in Fed fund rates and bank interest rates. This enables life insurers to invest premiums at higher yields and earn more investment income, expanding their profit margins.

Not only investment income, which is an important component of insurers' top line, annuity sales should also benefit from a higher rate environment.

Asset Managers

Brokerage firms advantage significantly from an increasing rate environment since a hike in rates generally occurs during periods of economic strength and upbeat investor sentiments.

Notably, a wealth management firm like Schwab has said time and again that each quarter point increase in rates generally adds to interest revenues, much of which flows directly to pre-tax profits.

Top 5 Gainers

Given the aforesaid positives, we have selected five solid stocks from these winning areas that boast a Zacks Rank #1 (Strong Buy) or 2 (Buy).

BankFinancial Corp.  operates as the holding company for BankFinancial, National Association that provides commercial, family, and personal banking products and services in Illinois. Currently, the company has a Zacks Rank #1. In the last 60 days, one earnings estimate moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings has moved 1.1% up in the same period. The stock's estimated growth rate for the current year is 39.7% versus the Financial - Savings and Loan industry's projected rally of 21.6%.

Morgan Stanley  is a financial holding company. The company operates through three segments: Institutional Securities, Wealth Management, and Investment Management. The company at present has a Zacks Rank #2. In the last 60 days, six earnings estimates moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings has moved 4.2% up in the same time frame. The stock's estimated growth rate for the current quarter is 32.2% versus the Financial - Investment Bank industry's expected rally of 12.3%.

Berkshire Hathaway Inc.  provides property and casualty insurance and reinsurance, as well as life, accident, and health reinsurance. Currently, the company has a Zacks Rank #2. In the last 60 days, two earnings estimates moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings has moved 0.5% up in the same time frame. The stock's estimated growth rate for the current year is 49.5% versus the Insurance - Property and Casualty industry's projected rally of 23.4%. You can see the complete list of today's Zacks #1 Rank stocks here .

American Equity Investment Life Holding Co.  provides life insurance products and services in the United States. Currently, the company has a Zacks Rank #2. In the last 60 days, three earnings estimates moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings has moved 0.9% up in the same time frame. The stock's estimated growth rate for the current quarter is 19.7%, in contrast to the Insurance - Life Insurance industry's projected decline of 2.3%.

WSFS Financial Corp.  provides various banking services in the United States. It operates through three segments: WSFS Bank, Cash Connect and Wealth Management. Currently, the company has a Zacks Rank #2. In the last 60 days, three earnings estimate moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings moved 0.6% up in the same time frame. The stock's estimated growth rate for the current year is 30.9% versus the Financial - Savings and Loan industry's projected rally of 21.6%.

5 Medical Stocks to Buy Now

Zacks names 5 companies poised to ride a medical breakthrough that is targeting cures for leukemia, AIDS, muscular dystrophy, hemophilia, and other conditions.

New products in this field are already generating substantial revenue and even more wondrous treatments are in the pipeline. Early investors could realize exceptional profits.

Click here to see the 5 stocks >>

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1 Stock of the Day pick for free .

About Zacks Equity Research

Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

Strong Stocks that Should Be in the News

Many are little publicized and fly under the Wall Street radar. They're virtually unknown to the general public. Yet today's 220 Zacks Rank #1 "Strong Buys" were generated by the stock-picking system that has nearly tripled the market from 1988 through 2015. Its average gain has been a stellar +26% per year.  See these high-potential stocks free >>.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance  for information about the performance numbers displayed in this press release.


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Morgan Stanley (MS): Free Stock Analysis Report

WSFS Financial Corporation (WSFS): Free Stock Analysis Report

BankFinancial Corporation (BFIN): Free Stock Analysis Report

American Equity Investment Life Holding Company (AEL): Free Stock Analysis Report

Berkshire Hathaway Inc. (BRK.B): Free Stock Analysis Report

To read this article on Zacks.com click here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Investing , Stocks
Referenced Symbols: MS , WSFS , BFIN , AEL , BRK.B


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