Identifying Resilient Companies in the Face of High Interest Rates

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Federal Reserve,Interest Rates,Rate Cuts

As the Federal Reserve delays rate cuts, the importance of finding companies resilient to high rates grows. We screen for U.S. companies with a market cap over $10 billion, low long-term debt to NOPAT ratio, and a high economic performance index.

Last week, Federal Reserve chairman Jerome Powell indicated that the central bank was not in a hurry to cut interest rates after big job gains in March and higher-than-expected inflation.

a long-term debt to net operating profit after taxes ratio lower than 1 – note that this excludes short-term debt; a future growth value on enterprise value ratio lower than 80 per cent. This metric represents the speculative value attributed to a company. We assume the company will produce its NOPAT forever without growth and we discount it using the company’s cost of capital. This computation yields an intrinsic value, which we deduct from the EV, resulting in the future growth value that we divide by the EV.

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