The Federal Reserve, and more specifically Janet Yellen, put to rest any doubts about the direction of interest rates. US Treasury purchases are set to decline by another $10 Billion per month with further reductions sure to follow; indications that the Fed will follow a trajectory of short-term rates rising to 1% by the year end 2015.
The impetus of Fed stimulus is undoubtedly aiding a multi-year bull market. As the fed stimulus comes to an end, investors should position their portfolio for a rising rate environment.
Automatic Data Processing (ADP)
ADP is a payroll processing company with much of their income coming from the float from employers funds before being paid out. Back in 2008, with higher rates, ADP generated $700 million of net income. An amount that is half that level today. As interest rates rise, ADP is sure to see an earnings tailwind boosted by their float income.
ADP by the Numbers
| Market Cap (intraday)5: | 37.72B |
| Enterprise Value (Mar 20, 2014)3: | 36.09B |
| Trailing P/E (ttm, intraday): | 26.81 |
| Forward P/E (fye Jun 30, 2015)1: | 22.37 |
| PEG Ratio (5 yr expected)1: | 2.36 |
| Price/Sales (TTM): | 3.24 |
| Price/Book (mrq): | 6.08 |
| Enterprise Value/Revenue 3: | 3.07 |
| Enterprise Value/EBITDA 6: | 14.80 |
Brokerages
Brokerage companies such as E-Trade (ETFC) and Charles Schwab (SCHW) generate income from their loans to investors and customer deposits. With dirt low rates, brokerage interest rate margins have suffered along with their income from client cash balances. We would look for these stocks to benefit handsomely from the increased interest.
Schwab by the Numbers
| Market Cap (intraday)5: | 35.81B |
| Enterprise Value (Mar 20, 2014)3: | 3.93B |
| Trailing P/E (ttm, intraday): | 35.36 |
| Forward P/E (fye Dec 31, 2015)1: | 23.98 |
| PEG Ratio (5 yr expected)1: | 1.31 |
| Price/Sales : | 6.38 |
| Price/Book (mrq): | 3.64 |
| Enterprise Value/Revenue |
