The Federal Reserve recently raised interest rates for the first time in years, and more rate hikes are expected. Another hike may even happen before the end of the year. How much higher rates end up going is anyone’s guess at this point, as inflation remains elevated and the war in Iran doesn’t appear to be ending anytime soon.
For investors, now may be a good time to consider investments that may do well even amid adversity. Three stocks that did well the last time the Fed aggressively raised interest rates in 2022 include ExxonMobil (NYSE:XOM), Merck (NYSE:MRK), and Super Micro Computer (NASDAQ:SMCI). Here’s how they did back then, and whether these stocks can once again prove to be good buys right now.
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ExxonMobil
Oil and gas giant ExxonMobil generated exceptional returns of more than 80% back in 2022, which was impressive given that the S&P 500 declined by more than 19%, in what proved to be a disastrous year for the markets. The company is a leader in the oil and gas sector and benefits from rising oil prices, which were soaring in 2022. Now, they’re also at elevated levels, and once again, ExxonMobil’s stock is a hot buy – it’s up around 50% this year.
Investing in the company can be a good way for investors to hedge against overall market risk, because if inflation is high and interest rates are rising, ExxonMobil’s business may do better than most due to rising commodity prices.
Another great reason to consider buying the stock is its dividend, which currently yields 2.4% – that’s double the S&P 500 average of 1.1%. Plus, ExxonMobil has been increasing its payout for decades. With strong earnings and a leadership position in the industry, the company’s financials are likely to improve, and it will be able to continue raising its dividend for the foreseeable future.
Merck
Another stock that did well in 2022 was healthcare company Merck, whose shares rose by 45%. The healthcare industry can be a fairly insulated area of the economy, as pharmaceutical drugs and medical devices are consistently in high demand and generally don’t depend on the economic cycle. That can make investing in these types of companies fairly safe moves for investors.
Merck had a strong year in 2022, with sales rising 22% and its leading cancer drug, Keytruda, growing at the same rate. The company’s operations are robust, and with its drugs in high demand, Merck performed well even as other stocks struggled. While it’s not a guarantee that every healthcare stock will perform better in a downturn, it’s a great example of the safety the sector can offer.
