Bank of England hikes interest rates again – 3 FTSE 100 stocks to buy now

The Bank of England has raised interest rates for the third time since December 2021. Here’s what Manika Premsingh is buying now. 

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

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.

We are officially in an interest rate hike cycle now. The Bank of England (BoE) just increased interest rates by another 25 basis points to 0.75%, the third such since December 2021. This follows the start of the rate hike cycle by the US Federal Reserve yesterday. 

What interest rate hikes mean for FTSE 100 stocks

This has implications for FTSE 100 stocks, of course. The most direct of these is that companies’ debt costs are going to rise. Keeping this in mind, I am now going to look out for debt levels, which have risen for some companies during the pandemic. 

But perhaps the even bigger implication is that inflation is well and truly out of hand. The BoE has put out a pretty grave monetary policy note as far as price rises are concerned. Inflation was already high and the Russia-Ukraine war has only increased the likelihood that it will stay elevated.

This means, that FTSE 100 companies’ costs are going to rise even more. Not all of them can pass on costs to their customers, so we should brace for margin contraction this year. This is likely to have an impact on dividends and share prices as well. 

BP share price is expected to double

Ideally, I would like to buy stocks that have manageable debt, which will help them tide over the interest rate increases and are less likely to be impacted on the cost front than others. One such is the oil biggie BP. I wrote another piece on it earlier in the day, which talks about how its share price is expected to almost double in the next year. 

I will not go into too much detail about BP here, except to highlight that both its absolute debt and its relative earnings have reduced significantly. And its profits have actually improved recently compared to last year as oil prices rise. 

Royal Dutch Shell is a FTSE 100 stock to consider

Similar to BP, is Royal Dutch Shell. It too has reduced its debt, a huge positive as interest rates rise, and increased its profits this year. Analysts expect its share price to rise even more than that for BP in the next year. Of course a lot could go wrong for oil stocks even now. The biggest of these is a slowdown in the economy that could occur precisely because of high inflation. But that might not happen. So I am still quite positive on oil stocks. I have already hold both in my portfolio and I might buy more of them. 

Imperial Brands’ dependable demand

Another stock that I believe could do relatively well at this time is the tobacco company Imperial Brands. It is a consumer defensive, with relatively dependable demand. Smokers are unlikely to give up because of a marginal increase in price, so it has the potential to pass on costs to customers. 

Its debt levels are not as healthy as those for oil stocks, though. For the year ending 30 September 2021, its net debt to earnings was 2.2 times, compared to around one time for the oil companies. But it is still an improvement over its 2.7 times levels in 2020. The stock looks good to me. If I had not bought it already, I would now.  

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Manika Premsingh owns BP, Royal Dutch Shell and Imperial Brands. The Motley Fool UK has recommended Imperial Brands. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »