7 No-Brainer Stocks to Buy When the Fed Is Hawkish

Stocks to buy

With the Federal Reserve raising the benchmark interest rate again, it’s time for investors to target no-brainer stocks to buy that may perform well during a period of monetary tightening. While this ecosystem closes many doors in the equities sector, a few well-positioned firms should do remarkably well.

Mainly, it’s important not to overthink the fundamental value of these no-brainer stocks to buy. With the Fed sending interest rates to a 14-year high, previous investment paradigms will shift. Rather than growth-driven ideas, Wall Street will likely value companies that benefit from inelastic demand. By this, I’m referring to enterprises that will enjoy relatively consistent demand irrespective of economic pressures. Thus, whatever people need the most in life is what investors should target.

Below are some of the most compelling no-brainer stocks to buy with the Fed going hawkish.

KR Kroger $46.47
FIVE Five Below $149.53
DUK Duke Energy $90.61
AWK American Water Works $135.93
KMI Kinder Morgan $18.25
ALL Allstate $128.59
AFL AFLAC $67.56

Kroger (KR)

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Headquartered in Cincinnati, Ohio, Kroger (NYSE:KR) operates supermarkets and multi-department stores throughout the U.S. Presently, the company sports a market capitalization of $33.2 billion. On a year-to-date basis, KR is up less than 3%. However, considering that the benchmark S&P 500 is down over 21% during the same period, Kroger looks like a winner.

Certainly, Kroger makes a fundamental case for no-brainer stocks to buy amid monetary tightening. Obviously, no matter what the Fed does, households must put food on the table. To be fair, demand won’t be completely inelastic as budget tightening will mean slimmer grocery purchases. However, humans must consume a baseline minimum amount of calories. That should help Kroger stay comfortably afloat during these times.

In addition, it’s also important to remember the trade-down effect. Even if the economy slips into a deep recession, consumers will at first trade down from nights out at fancy restaurants to drive-thrus at fast-food joints. Failing that, the next trade-down will be to the grocers. In other words, Kroger is favorably the last in line, making it one of the no-brainer stocks to buy.

Five Below (FIVE)

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Headquartered in Philadelphia, Pennsylvania, Five Below (NASDAQ:FIVE) is a chain of specialty discount stores that sells products that are less than $5. Also, it sells a selection of products ranging from $6 to $25. Presently, the company features a market cap of $8.3 billion. Since the start of the year, FIVE is down 28%. However, in the trailing month, it’s up 3%.

Over the past several weeks, I’ve been talking about Five Below frequently because it’s one of the no-brainer stocks to buy. Staying with the trade-down theme, most consumers won’t go from A (premium retailers) to Z (literal dollar-discount stores) immediately. Instead, I anticipate a transition will occur. And Five Below provides a classier take on the discount retail theme, thus attracting bargain hunters.

Also, the company brings great value from a fiscal perspective. According to data from Gurufocus.com, Five Below features outstanding income-related performance metrics relative to the industry. Also, decent stability in the balance sheet undergirds FIVE, making it one of the no-brainer stocks to buy.

Duke Energy (DUK)

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Based in Charlotte, North Carolina, Duke Energy (NYSE:DUK) is an electric power and natural gas holding company. At the moment, Duke features a market cap of just over $69 billion. Since the beginning of the year, shares slipped around 10%. In the trailing month, DUK is about half a percent below parity, indicating some movement among the bulls.

Fundamentally, Duke Energy represents one of the no-brainer stocks to buy based on economic realities and migration patterns. First, no matter what happens in the economy, households will do whatever it takes to keep the lights on. Plus, being tied to a digitalized society, and losing access to power simply represents an unacceptable conundrum.

Second, Duke benefits from millennial migration trends. With so many young people being priced out of the wild real estate market – particularly in the coastal metropolitan areas – they’re looking for regions with lower costs of living. Duke just happens to service many of these regions, making it an attractive long-term idea among no-brainer stocks to buy.

American Water Works (AWK)

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Headquartered in Camden, New Jersey, American Water Works (NYSE:AWK) through its subsidiaries provides water and wastewater services. It offers water and wastewater services to approximately 1,700 communities in 14 states serving a population of approximately 14 million through 3.4 million customer connections.

Currently, AWK carries a market cap of $24.7 billion. Since the start of the year, AWK lost more than 24% of its equity value, which is admittedly distracting. However, in the trailing month, shares gained over 4%. Probably, as more people recognize that the Fed isn’t messing around with its rate hikes, folks will come around to AWK.

Basically, the narrative aligns with Duke. Water services practically represent a human right. Therefore, it’s the last expense to be traded down precisely because no alternative exists. And while AWK could use some shoring up of its balance sheet, the underlying business does enjoy strong income-related performance metrics.

Kinder Morgan (KMI)

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Based in Houston, Texas, Kinder Morgan (NYSE:KMI) is one of the largest energy infrastructure firms in North America. Per its public profile, Kinder specializes in owning and controlling oil and gas pipelines and terminals. Currently, the company carries a market cap of $40.8 billion. Since the start of the year, KMI gained over 11% of its equity value.

Fundamentally, as a midstream player, Kinder benefits from established demand flows. For instance, upstream players (exploration and production) may lose out big to a lack of exploration and production. On the downstream end, certain brands may not be as competitive as others. However, the broader hydrocarbon space always needs storage and transportation solutions, which afford KMI better income predictability.

Sure enough, the financials undergirding Kinder provide much confidence in terms of income-related stability. For instance, the company’s revenue growth rate ranks among the industry’s top half. The same can be said about its profitability margins, making KMI a prudent idea among no-brainer stocks to buy.

Allstate (ALL)

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Based in Illinois, Allstate (NYSE:ALL) is one of the largest insurance companies in the U.S. Currently, Allstate commands a market cap of $34 billion. Since the beginning of this year, ALL gained a little over 9%. In any other circumstance, this wouldn’t be anything to write home about. But again, with the benchmark index down more than 20%, a 9% gain represents a massive victory.

Further, additional gains may be on the horizon, making ALL a worthy candidate among no-brainer stocks to buy. Generally speaking, insurance stocks tend to rise during periods of higher interest rates. More importantly, companies like Allstate benefit from inelastic demand. No matter what, people need a baseline of financial protection. Allstate provides exactly that.

Beyond this point, auto insurance providers – which Allstate is one of – benefit from a hostage audience. Most states in the Union require basic auto insurance coverage. Therefore, look to Allstate to help you navigate the Fed’s monetary tightening.

Aflac (AFL)

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Headquartered in Columbus, Georgia, Aflac (NYSE:AFL) is an insurance specialist. Specifically, Aflac represents the largest provider of supplemental insurance in the U.S., per its corporate profile. Presently, the company features a market cap of $42.63 billion. Since the Jan. opener, AFL gained a whopping 15.3%. Not bad for a “boring” company and investors may look forward to even greater gains.

If the coronavirus pandemic taught us anything, it’s that no matter how advanced we become as a society, if the forces that govern the universe decide it’s time for our little corner of the galaxy to have some smelly stuff hit the proverbial fan, there’s nothing we can do about it. Well, nothing except having some supplemental insurance for the times when “regular” insurance doesn’t cover the underlying event.

As with other insurance players, Aflac will likely benefit from a higher interest rate environment. Obviously, you can see it in the chart itself. Thus, it’s one of the no-brainer stocks to buy.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.