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Lower Rates to Stay Longer? 4 Stocks to Benefit

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When Fed Chair Janet Yellen held off raising rates last month on global concerns and its potential adverse impact on the U.S. economy's growth, her decision was referred to as a "close call." And Fed officials, including Yellen herself, had pretty much kept alive the hope for a 2015 rate hike.

Since then, things seem to have taken a U-turn with ISM numbers failing to meet expectations and the latest job numbers disappointing everyone.

The ISM Manufacturing Index decreased to 50.2% in September while the market expectation was 50.6% and the August tally was 51.1%. That hit the lowest level in last 2 years. The figure was a tad higher than 50%, which is the cut off line between expansion and contraction. The weakness was blamed on a strong dollar and the insipid global economy.

The job number was discouraging too. Only 142K jobs were added in September versus estimates of 200K. This wasn't all. Downward revisions were made to the August number to 136K (from 173K originally) and the July tally to 223K (from 245K initially). And this was highly disappointing because August numbers actually have a history of seeing upward revisions.

Moreover, though the unemployment rate remained flat at 5.1%, average hourly earnings were nearly unchanged from the prior month while the average workweek fell slightly. That signals a downtrend for the GDP numbers in Q3 as well following the second-quarter revised number of 3.9%.

When Will the Fed Hike Rates?

With the apprehension that the U.S. economy might have already started feeling the contagion effect of the global economic weakness, expectations of a rate hike has now been pushed further away from October/December 2015 to early 2016.

According to a CNBC report that cited RBS, the chance of an October hike is almost blown out (less than 1%). Even the probability for a December increase has fallen to 30% from over 40%. Further, the odds increased for March to more than 50%. In fact, the first rate hike is anticipated to be much more symbolic and a full raise is not figured until June/July of 2016.

Sectors in Focus

Keeping the latest speculation in mind and our anticipation that the Fed will stick to its wait-and-see approach on economic improvement, labor market growth and inflation target, we zeroed in on sectors that benefit from a low-rate environment. Picking stocks from these sectors should help you make solid returns.

Obviously, utilities and real estate investment trusts (REIT) head that list for their high dependence on debt. Being providers of electric, gas and power, utilities require a huge infrastructural set up for their operations and end up shouldering huge amounts of debt. REITs too depend on borrowings for the acquisitions, development and redevelopment of the real estates. Therefore, when borrowing remains cheap, the stocks from these sectors end up being big movers.

Further, any rate decrease makes these sectors' dividend yields more attractive than yields on fixed income and money market accounts. So with the current volatility, high dividend payers would obviously be preferred choices for a steady income stream.

Stocks to Consider

From our chosen sector duo, we screened the following stocks with a favorable Zacks Rank. A Zacks Rank of #1 (Strong Buy) or #2 (Buy) indicates high chances of outperforming the market over the next 1-3 months. Along with high ranks, we looked for stocks with good growth prospects as well as a decent dividend yield.

Here are the 4 stocks that we shortlisted for your consideration:

Brookfield Infrastructure Partners L.P.BIP : The company was established by Brookfield Asset Management as its primary vehicle to own and operate certain infrastructure assets on a global basis. Brookfield Infrastructure operates high quality, long-life assets that generate stable cash flows, require relatively minimal maintenance capital expenditures and, by virtue of barriers to entry and other characteristics, tend to appreciate in value over time. Its current business consists of the ownership and operation of premier electricity transmission systems and timberlands in North and South America, and it seeks acquisition opportunities in other infrastructure sectors with similar attributes.

The Zacks Rank #1 (Strong Buy) stock has a dividend yield of 5.62% and its projected EPS growth rate is 400.93% against the industry average of 3.45%.

Consolidated Edison, Inc.ED : This is one of the nation's largest investor-owned energy companies. The company provides a wide range of energy-related products and services to its customers through regulated utility subsidiaries and competitive energy and telecommunications businesses.

This Zacks Rank #1 (Strong Buy) stock has a dividend yield of 3.90% and its projected EPS growth rate is 3.88% against the industry average of 3.45%.

Omega Healthcare Investors Inc.OHI : This is a self-administered REIT which invests in income-producing health care facilities, principally long-term care facilities, with the objective of profitable growth and further diversification of the investment portfolio. Investments are located primarily in the United States.

The Zacks Rank #2 (Buy) stock has a dividend yield of 6.24% and its projected EPS growth rate is 10.82% against the industry average of 6.67%.

LaSalle Hotel PropertiesLHO : This REIT is engaged in owning hotel properties and continues to expand the hotel investment activities of LaSalle Partners Incorporated and some of its affiliates collectively. LaSalle is an institutionally respected real estate services and investment firm which has extensive experience in the acquisition, investment management, finance, development and disposition of hotel properties.

The Zacks Rank #2 (Buy) stock has a dividend yield of 6.28% and its projected EPS growth rate is 12.72% versus the industry average of 6.67%.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days . Click to get this free report >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

BROOKFIELD INFR (BIP): Free Stock Analysis Report

CONSOL EDISON (ED): Free Stock Analysis Report

LASALLE HTL PRP (LHO): Free Stock Analysis Report

OMEGA HLTHCARE (OHI): Free Stock Analysis Report

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


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

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