The world of investing is full of risks. This is because there are a host of threats which could increase volatility and the odds of prices declining. The result is that investors must diversify as much as possible against these risks. In the portfolio of five stocks, each one has varying degrees. To fully understand what is occurring requires focusing on those that are the most sensitive to interest rates, their rankings and the types of risks. Together, these elements will illustrate those positions with the highest amounts of volatility.
The Five Investments
The five different firms that were examined include: Apple (NASDAQ: APPL), Microsoft (NASDAQ: MSFT), Pepsi Co (NYSE: PEP), WW Grainger (NYSE: GWW) and WESCO (NYSE: WCC). Each one of them has different characteristics that will impact their total return. This means that investors must analyze these variables in conjunction with the overall amounts of risk. (Standard and Poor’s, 2014) (Plunkett, 2014)
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"Investments, Interest Rates and Risk".
Which of the five investments do you think are most highly affected by the level of interest rates in the economy? Why?
The investments which are impacted the most by rising interest rates include: APPL, MSFT and WCC. These firms are involved with technology. When interest rates are rising, the economy is slowing and consumer / business spending is declining. This will have an adverse impact on the price of these stocks and future expectations surrounding earnings. Once investors become concerned, is the point they will selloff shares in order to reduce the volatility in their portfolios. This is when the prices of these stocks will continue to decline until the sellers have become exhausted. (Standard and Poor’s, 2014) (Plunkett, 2014)
Rank the five investments in order of the most risky to the least risky and explain in detail why you ranked them in that manner.
1. APPL: This is risky as consumer and business spending could cause earnings to decline. Any kinds of uncertainty have been known, for the stock to experience major corrections. Its biggest threats are from Samsung and Google. Samsung is has the most dominate phones in the marketplace with the Note and Galaxy series. Each year they have been making improvements to their line and reaching out to more cliental. Google is experiencing increasing earnings from their open source operating system and the variety of applications they are providing. At the same time, they have been investing in lots of smart technology and are developing new devices to become the next generation Gizmos everyone wants. (Standard and Poor’s, 2014) (Plunkett, 2014)
2. MSFT: Microsoft is in a similar position as Apple. This is because the company sells software, cloud services and gaming technology to consumers. When the markets are concerned, the stock will fall faster than the major averages. The biggest factor that influenced the company’s performance is the tremendous amounts of competition they are facing. This is because technology is shifting and a number of firms are positioning themselves to be the most dominate player inside the technology sector. (Standard and Poor’s, 2014) (Plunkett, 2014)
3. WCC: WCC will see greater amounts of risk from a slowdown in business spending. This is because they sell technology equipment and services to telecommunications carriers. (Standard and Poor’s, 2014) (Plunkett, 2014)
4. PEP: Pepsi Co is more diversified by owning a number of food and beverage brands. This offers stability in their earnings through selling items consumers will continue to use. The most notable include: Lays, Ruffles, Doritos, Tostitos, Cheetos, Fritos, Santitas, Quaker oatmeal, grits, rice cakes, Aunt Jemima, Quaker Chewy granola bars, Captain Crunch, Life cereals, Rice-A-Roni, Quaker Oat Squares, Quaker Natural Granola, Pepsi, Gatorade, Mountain Dew, Diet Pepsi, Aquafina, 7UP, Diet Mountain Dew, Tropicana Pure Premium, Sierra Mist, Mirinda, Domik v Derevne, Chudo, Agusha and ready to drink teas. (Standard and Poor’s, 2014) (Plunkett, 2014)
5. GWW: This firm is diversified in a number of industries and it sells products which are in demand regardless of the economic cycle. In these periods, the firm will have more stability in their earnings and can withstand long protracted downturns in the economy. (Standard and Poor’s, 2014) (Plunkett, 2014)
What types of risk do you think affects each of the investments?
The types of risks which are impacting these investments include: interest rate, economic, business, political and regulatory. Any one or a combination of them; has the potential to increase the overall amounts of volatility they are experiencing. (Standard and Poor’s, 2014) (Plunkett, 2014) (Carey, 2011)
- Carey, M. (2011). Accounting. Oxford: Oxford University Press.
- Plunkett, J. (2012). Plunkett’s Info Tech Industry. Houston, TX: Plunkett Research.
- Standard and Poor’s. (2014). Standard and Poor’s Stock Reports. New York, NY; McGraw Hill.
