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4 Financial Stocks To Profit From Interest Rate Increases

By U.S. News & World Report

As the U.S. economy continues to improve, many people watching the stock market expect the Federal Reserve to begin a series of interest rate increases beginning as early as September. Although an environment of increasing rates is generally bad for stocks, it is typically beneficial for the financial services sector.

When rates rise, lenders try to increase the amount they charge for loans faster than what they pay on deposits. This results in an increasing net interest margin, which is good for the lenders’ bottom line.

The screen. We used the Recognia® Strategy Builder to search for large U.S. financial services companies poised to benefit from a rising interest rate environment. We began by setting a minimum market capitalization threshold of $10 billion. We wished to focus on the largest and most stable companies in the market, as they offer the greatest security and will be best able to ride out any unfavorable developments in market conditions.

Next, we looked for companies with strong margins and earnings growth as proof of their efficient operations and ability to generate earnings for shareholders. We screened for companies with an earnings-per-share growth rate (projected this year versus last year) of 10 percent or more and a return on equity also of 10 percent or more. Return on equity is a measure of business efficiency that indicates how well the company’s management is able to use invested equity in order to create income.

Finally, in order to pick companies with reasonable valuation levels, we specified a forward price-to-earnings ratio of 25 or less. This allowed us to focus on companies whose stocks are reasonably priced compared to their expected earnings. Here are the results:

Bank of Nova Scotia (ticker: BNS) is a Canadian banking giant that trades on the New York Stock Exchange. In addition to being Canada’s third-largest bank, Scotiabank also has significant operations in Mexico, the Caribbean and Latin America. Scotiabank passes our screen with a low forward P/E ratio of 11.1 and a projected EPS growth rate this year of 11 percent. The stock has a 4.5 percent dividend yield, making it an attractive option for conservative investors seeking income.

Progressive Corp. (PGR) is one of the largest providers of auto insurance in the U.S. Similar to banks, insurance providers also benefit from a rising interest rate environment because they are required to hold large amounts of debt to underwrite the policies they write. Rising interest rates mean increasing margins and profits for insurance providers. This positive outlook is reflected in Progressive’s forecasted EPS growth rate of 23.4 percent and forward P/E ratio of 16.8.

Lincoln National Corp. (LNC) is an insurance and investment management holding company based in Radnor, Pennsylvania. Lincoln National business operations include Lincoln Life and Penn-Pacific Life Insurance. With a forward P/E ratio of just 9.3, the stock looks extremely inexpensive compared to its peers. This is partly the result of the company’s second-quarter financial results released on July 29, which missed analysts’ expectations on both revenue and earnings, albeit by a small margin. Lincoln Financial is an interesting value play for a patient investor.

American Express Co. (AXP) is a financial conglomerate headquartered in New York. The stock has had a tough run this year, down 21.5 percent year to date. Financial results issued at the end of July were mixed, with the company beating on earnings but missing on revenue. Still, the company has a stellar track record and strong brand recognition around the world. Financial metrics tell a more optimistic story with a 29 percent return on equity and a forward P/E ratio of just 13.6. On Aug. 7, it was announced that hedge fund ValueAct Capital would be taking a $1 billion stake in the company.

Historical performance: Recognia Strategy Builder provides a backtesting capability to evaluate how well an investing strategy would have worked over a five-year historical period. Using a three month buy-and-hold strategy, the screen described had a 14.8 percent annualized return compared to 10.7 percent for the Dow Jones industrial average and 13.4 percent for the S&P 500 index.

The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Recognia Inc. in respect of the investment in financial instruments. Investors should conduct further research before investing.

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4 Financial Stocks To Profit From Interest Rate Increases originally appeared on usnews.com

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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