Subject: Higher interest rates -> more profit
Earlier this month* there was an interesting discussion on this board as to why Buffett had asserted BRK would profit from higher interest rates.

From today's WSJ:

"At some of the biggest and most secure companies, the moves had the opposite of the intended effect, boosting their profits and spending power.

The winners from higher rates were high-quality borrowers, who locked in low interest rates around the pandemic with bonds maturing further in the future than any time this century. Higher rates have little immediate impact on their borrowing costs' only affecting bonds when they are refinanced'while they earn more on their cash piles straight away."

and

"that has created a split between the haves and havenots in the market. The pain falls on weaker companies that were unable to lock in low rates for very long, or that chose to borrow using floating-rate bank loans or similar debt where rates rise as the Fed hikes. Companies rated as junk, the weakest category, now have the shortest-ever maturity on their debt on average, meaning they face more frequent refinancing at much higher rates. More money spent on interest means less available for shareholders, workers and investment."

and

"it is clear that the biggest companies are the least affected by higher rates...the interest rate being paid by the largest 10th of companies in the S& P 1500 index is barely up from its lows and still below its pre-pandemic peak. The rate paid by the smallest half of companies in the index has risen to the highest in more than a decade"

and finally

"if the economy finally breaks, cyclical companies'those most sensitive to downturns, such as carmakers' faced with sharply lower cashflows will struggle to pay even low interest rates they locked in long ago. Until then, we live in strange times. Rising rates make a big part of the economy feel richer"

http://ereader.wsj.net?selDate...

So, it seems the ideal company to profit in this setting is:
a) large
b) (relatively) non-cyclical
c) with robust, predictable, large cash flows
d) a balance sheet allowing advantageous borrowing terms and
e) a management savvy enough to take substantial advantage of these tailwinds when they occur

-- sutton

(*I was in a Covid haze at the moment, and don't remember exactly where -> hence the new thread)