2 ASX shares (not banks!) to boom from rising interest rates: experts

They're rare, but there are businesses that aren't banks that will benefit from higher rates. Here's a couple of examples.

| More on:
a young woman raises her hands in joyful celebration as she sits at her computer in a home environment.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Reserve Bank raised the cash rate this month, and is expected to do so again multiple times this year.

Most sectors and businesses would find this situation detrimental to earnings.

After all, money becoming more expensive makes it harder to borrow to grow or operate, and it takes away available capital from potential investors.

It's already well-publicised that bank ASX shares will be rare winners in such an environment.

Banks will simply pass on each rate rise in full to its loan customers, and only pass it on partially to deposit clients. This easily increases their net interest margin.

But there are other businesses, believe it or not, which could benefit from higher interest rates.

A pair of experts recently named two such non-bank ASX shares that you may consider buying:

40% upgrade in earnings as rates rise

Tribeca portfolio manager Jun Bei Liu told a Livewire video that she knows of a bunch, but the pick of them would be Computershare Limited (ASX: CPU).

"That's the number one beneficiary of higher interest rates," she told a Livewire video.

Liu said that, for many investors, the link between a share registry business and higher interest rates may not be obvious. 

"Well, they hold a lot of cash, so their earnings are actually extremely sensitive to high rates. With every 50 basis-point increase, their earnings will lift by double digits."

She admitted that the effect will take a while to kick in, due to residual hedges that Computershare had put in to survive the zero-interest pandemic era.

"But earnings are going to be significantly upgraded," said Liu.

"Even at the current spot or consensus expectations for the bond yield, this company's earnings could be upgraded somewhere between 30% to 40%."

Light at the end of the tunnel

TMS Capital portfolio manager Ben Clark's surprise interest rate winner is annuities provider Challenger Ltd (ASX: CGF).

He admitted it's a company that's had issues in recent years.

"To be honest, it's been one I've got wrong in the past. This company was blown apart, particularly by the Royal Commission," he said.

"It's effectively Salesforce Inc (NYSE: CRM) with financial planners pushing their products, particularly bank-employed financial planners. But it was also impacted by the move in cash rates to zero. Annuities don't sound particularly attractive when you're locking in a 1% rate for the rest of your life."

But during that period of turbulence, Clark feels management has reformed the business, moving away from retail products.

"It's [now] much more closely aligned to institutional solutions for annuities, particularly things like inflation linked to annuities and more boutique solutions to problems in big LICs [listed investment companies]."

With this transformation, Clark reckons "there's earnings momentum coming back".

"For the first time in what feels like years, we've also seen the financial advice industry start to calm down," he said.

"I think the retail side will start to pick up once you can start to lock in much more attractive yields."

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Challenger Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Investing Strategies

Happy young woman saving money in a piggy bank.
Dividend Investing

How to make $10,000 of passive income a year

Here's how to make the share market your own personal ATM.

Read more »

Blue chips with stock written on them.
Dividend Investing

2 ASX blue-chip shares offering big dividend yields

These businesses have a lot to offer income-focused investors.

Read more »

Woman laying with $100 notes around her, symbolising dividends.
Dividend Investing

How much dividend income does the average ASX investor earn?

It's an impressive amount!

Read more »

Person holding Australian dollar notes, symbolising dividends.
Dividend Investing

Which ASX 200 sector paid the best dividends in FY25?

We reveal the dividend returns of each of the 11 market sectors in FY25.

Read more »

A young woman sits at her desk in deep contemplation with her hand to her chin while seriously considering information she is reading on her laptop.
Dividend Investing

Are CBA shares still a good buy today for passive income?

Looking to earn passive income from ASX dividend stocks? Here’s my take on CBA shares.

Read more »

A happy young couple lie on a wooden deck using a skateboard for a pillow.
Dividend Investing

Where to invest $50,000 in ASX dividend shares

Let's see why these shares could help income investors build a strong portfolio.

Read more »

Man holding out Australian dollar notes, symbolising dividends.
Dividend Investing

2 Australian stocks with ultra safe dividend yields

These businesses have paid consistently-growing dividends for decades.

Read more »

Happy man holding Australian dollar notes, representing dividends.
Dividend Investing

$500 buys me 233 shares in this 10%-yielding income stock!

Macquarie expects this stock to offer big yields.

Read more »