<<And the companies that many people are investing in, are imo, mostly immune from rising interest rates. These tech companies are cash rich. With very little ltd. Unless their customers get hurt by rising rates (and so curtail purchases orders), I don't right now see how many of these tech companies can be hurt if rates go up another percent.>>
In terms of finance, the exact opposite would seem to be true. Value stocks (except those whose business is directly effected by rising interest rates, like homebuilders for example), should be the LEAST effected by rising interest rates. Here is why. Let's discount two streams of cash flows, one for a low-P/E stock, and one for an internet company.
Low P/E: 10, 10, 10, 10, 100
High P/E: (40), 0, 0, 0, 220
With a discount rate of 10%, these two earnings streams are worth the same, $100.
Now let's play with the discount rate. If we move it up to 12% (interest rates rise 200 bp), then the low-P/E stock's value falls 7% and the high P/E valuation falls by 11%.
I believe it is a myth that utilities and other dividend plays are "interest rate sensitive" except in the sense that any financial asset is interest rate sensitive. The concept of long and short duration in bonds should tell one that these are far less interest rate sensitive than a high multiple stock.
Its not the effect interest rates have on the business - its the effect they have on the valuation. |
