Although rising interest rates are largely seen as negative for stocks, some companies may actually have a net-gain from an interest rate bump. Today’s low interest rate environment has led to some pretty attractive debt offerings (for the companies at least). When interest rates eventually start rising however, many companies will run into trouble looking for ways to finance their new debt loads. One company however will not only experience a financial gain in this environment, but will also be able to capitalize on their competitors problems by deploying their ample cash hoard.
Apple (AAPL) currently holds $23.46 billion in cash and short-term investments. Besides providing a rock solid balance sheet, Apple’s cash provides an edge to differentiate itself in a possibly tough environment.
For every 2 percentage points in rate hikes, Apple will experience almost $500 million added to their bottom line.
All that is needed is for the Fed to move rates up to 2%, hardly unquestionable when compared to historic levels. At 4%, nearly $1 billion is added to Apple's profits.
During the last 12 months Apple has posted a profit of $5.7 billion. With 4% interest rates, Apple would experience earnings growth of nearly 20%, and that’s not even adding in organic growth. The only question left is, when will the Fed move?
Disclosure: No Positions