Lots of good places to ‘hide’ with high interest rates

With US interest rates rising, investors can invest their money by looking at companies in the S&P 500 that can “raise their prices” and “maintain margins,” Kevin O’Leary told CNBC.

“There are a lot of them. This is a good place to hide when you get a 2% dividend yield,” the popular investor said Thursday in Squawk Box Asia.

O’Leary’s comments came after the Federal Reserve raised its benchmark interest rate by half a percentage point on Wednesday, in line with market expectations.

Fed Chair Jerome Powell noted that a 75 basis point rate hike “is not something the committee is actively considering,” even though market expectations are heavily skewed toward a three-quarter percentage point Fed hike in June.

Similarly, O’Leary cast doubt on such a sharp rally, adding that markets are still “in a growth cycle.”

“I don’t think that’s going to happen. You have a lot of concerns in Europe, you have the Russian invasion of Ukraine. You have supply chain problems around wheat and the goods coming in because the Ukrainians are not going to put winter wheat in,” he said.

“there [are] Lots of things to worry about, which I think are holding the Federal Reserve back. This is your friend.”

“I think the question you have to answer is: Can Powell glide the plane for a smooth landing? If you think he can, like I do, you stay in the long stock,” said the venture capitalist, who is also a co-host of Shark. Tank” and President of O’Shares ETFs.

The market at the end of the year, [will go through] Lots of volatility — well over 1,000 points a day,” he said, referring to the Dow Jones Industrial Average slumped by 1,063 points after Wednesday’s rate hike.

O’Leary said that the impact of inflation on cash and an increase in interest rates on long bonds – such as US 10-year Treasuries – leave people with little choice. That is why he said he will focus on the stock markets, buying shares of companies that have “some semblance of pricing power.”

“It’s the most holdable, the most capital-protective. Stocks still do in times of inflation… You might argue it’s not enough pricing power, but it’s a lot better than long bonds. And it’s definitely better than cash now.”

When asked where investors can find the most convincing returns in the current market, O’Leary narrowed it down to energy and healthcare stocks.

“I think Energy has been a real pioneer in terms of providing dividend yield, and some of those stocks are now up to 7, 8, 9 per cent,” he said.

“People are worried about what will happen to the price of oil. But punishing Russia is likely to keep prices where they are here. [And] There is more production in the United States.”

He noted that the healthcare sector is “a little overwhelmed”.

“The patch has crushed a lot of biotech companies, but it’s really going to maintain a significant amount of growth,” O’Leary said.

“Moderna, for example, has very good numbers … I invested there, as well as in Pfizer. There [are] Places now that the economy has changed, that looks very promising for sales and distributions in general only to shareholders.”

“I think going into a more conservative mandate that’s a big cap, dividend payer isn’t a bad outcome. It’s not a bad place to hide.”