The Reserve Bank of Australia (RBA) is expected to raise its benchmark interest rate for the sixth straight time next Tuesday. The financial sector is the one that generally benefits from higher increases in interest rates, thanks to increased profits.
So let’s see how several financial stocks on the ASX are placed ahead of the interest rate meeting, focusing on Judo Capital Holdings Limited (ASX: JDO), Resimac Group Limited (ASX: CMR) and Pepper Money Ltd (ASX: PPM).
But first, some background
Central banks are trying to stifle inflation. With recent readings still showing inflation at historic highs, many analysts have revised up their forecasts for the RBA’s next rate hike. Many analysts raised their RBA rate forecast to 0.50% from 0.25%.
Rising interest rates tend to affect some sectors more than others, for better or for worse. The financial sector is one of the most sensitive to changes in interest rates. While higher rates may mean more expensive loans for borrowers, for banks it may mean more profitable business. For example, banks can charge more on their loans and generate higher profit margins in their lending divisions.
From a largely volatile market in 2022, ASX financial stocks rose almost 1% on Thursday ahead of the RBA meeting. However, they are still down more than 9% since the start of the year.
Judo Capital stock price target suggests over 70% upside
The bank mainly lends to small and medium enterprises in Australia. It also offers a range of personal financial products. Judo Capital shares are down almost 50% since the start of the year.
According to TipRanks analyst rating consensus, Judo stock is a Strong Buy. Judo Capital’s average share price target of AU$1.90 implies over 70% upside potential.
TipRanks’ insider trading activity tool shows that the insider confidence signal is currently positive on judo. Company insiders, such as officers and directors, have purchased shares worth A$556,900 in the past three months.
Resimac Group share price forecast implies a 66% rise
Resimac is an alternative lender to the home ownership and asset finance markets. RMC shares are down about 45% year-to-date. According to TipRanks analyst rating consensus, Resimac stock is a Strong Buy. The average Resimac stock price forecast of AU$1.64 indicates an upside potential of over 66%.
The Resimac share receives positive mentions on financial blogs. Data from TipRanks shows that financial bloggers’ views are 80% bullish on RMC, compared to an industry average of 66%.
Pepper Money stock price forecast points up 47%
The company offers home loans, car loans and a range of other consumer loans. Although shares of Pepper Money have climbed more than 20% in the past three months, they are still down almost 30% from where they started the year.
According to TipRanks analyst rating consensus, Pepper Money stock is a Strong Buy. Pepper Money’s average stock price forecast of AU$2.11 implies over 47% upside potential.
Pepper Money scores eight out of 10 in TipRanks’ Smart Score rating system, indicating the stock has strong potential to outperform market expectations.
Rising interest rates have always been favorable to the financial sector. While there are plenty of ASX financial stocks for investors to choose from, analysts see Judo Capital, Pepper Money and Resimac stocks as particularly promising.