2 stocks to rebalance your portfolio ahead of an interest rate hike

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2 stocks to rebalance your portfolio ahead of an interest rate hike

Canada inflation and interest rate hike
Image source: © Pichitbo | Megapixl.com

Highlights

  • Since March 2020, the central bank kept its overnight rate at 0.25 per cent due to the COVID-19 pandemic.
  • The interest rate hike seems inevitable as Canada's consumer price inflation was the highest in December since 1991.
  • Historically, the financial sector benefits if the interest rate is increased.

The Bank of Canada (BoC) is expected to increase interest rates next week as inflation pressure increases. Published reports claim that the central bank could announce the rate hike on Wednesday, January 26.

Since March 2020, the central bank kept its overnight rate at 0.25 per cent due to the COVID-19 pandemic. However, it is expected that the interest rate could increase up to two per cent.

The interest rate hike seems inevitable as Canada's consumer price inflation was the highest in December since 1991. Last month, the annual inflation hit 4.8 per cent, revealed a Statistics Canada report.

Also Read: 9 solid Canadian stocks with sound financials to buy in 2022

Amid fears of interest rate hikes, investors could be looking for stocks that may perform decently after the rates increase. If you are one such investor, then we have got you covered.

Stocks to buy ahead of an interest rate hike


Historically, the financial sector benefits if the interest rate is increased. We are saying this because the interest margin expands at the time of rate hikes, increasing the profit.

 Canada interest rate hike
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Apart from the financial sector, companies operating in insurance often tend to do well when interest rates are increased.

Insurance companies can get higher returns on the premium income collected from policyholders, and hence the overall sector performs well.

Bottom line

If you are looking to rebalance your portfolio investment ahead of the rate hike, here are two options you could consider:

  1. Great-West Lifeco Inc. (TSX:GWO)

It is one of the largest insurance companies in Canada and has operations in the US and Europe. Great-West Lifeco provides both individual and group insurance.

In the third quarter of 2021, the insurance company had displayed significant financial growth. Great-West Lifeco's net earnings were C$ 872 million in Q3 2021 compared to C$ 826 million in Q3 2020.

Meanwhile, the return on equity increased to 14.9 per cent from 12.1 per cent in the third quarter of 2020.

  1. Canadian Western Bank (TSX:CWB)


Since the past year, Canadian Western Bank stock returned 30 per cent to the shareholders. At the end of the trading session on January 19, the CWB stock was priced at C$ 39.5 per share.

Although top banking stocks, like Royal Bank of Canada and Toronto Dominion Bank, are not possible for all investors due to their high price.

Also Read: Royal Bank (RY) & CIBC (CM): 2 stocks to bank on as omicron fear rises

Hence, we have shortlisted Canadian Western Bank. In Q4 2021, CWB's diluted earnings per share were C$ 1.01, up 38 per cent year-over-year (YoY).

Meanwhile, the total revenue increased 10 per cent YoY to C$ 261 million.

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