Five stocks you must sell because interest rates are rising

·3-min read
Ceraadi performs at the boohoo NYFW celebration at the boohoo Mansion on September 11, 2019 - Monica Schipper /Getty Images
Ceraadi performs at the boohoo NYFW celebration at the boohoo Mansion on September 11, 2019 - Monica Schipper /Getty Images

The Bank of England has raised interest rates again today, with the 0.5 percentage point increase to 1.75pc being the sharpest jump since the 1990s.

Rate rises across the West have spooked global stock markets. A higher cost of borrowing has affected debt-laden companies and also diminished what investors expect from fast-growing companies who promise future profits.

But some stocks are more vulnerable to rate rises than others. Telegraph Money finds out which shares look increasingly fragile as the Bank Rate continues its march upwards.

Deliveroo and JustEat

Susannah Streeter, of the broker Hargreaves Lansdown, warned that food delivery giants Deliveroo and JustEatTakeaway.com could be vulnerable in the event of a recession, as rising rates threaten to stifle economic growth.

"They look very fragile at the moment," she said. "They are still trying to increase their market share and Just Eat has a substantial level of debt. Deliveroo is cash positive but it has a profitability problem."

"And they are completely dependent on how much people are willing to spend on takeaways. If we head towards a recession and consumers tighten their budgets, these companies could be hit very hard."

Boohoo

Sophie Lund-Yates, also of the broker, warned that fast-fashion retailer Boohoo could sting investors.

“Boohoo is taking on more debt as it spends on expanding its distribution networks. It has a huge infrastructure bill, but is barely cash positive.”

Ms Lund-Yates added that low consumer confidence could also hurt the company, as shoppers reined in their spending to cope with the cost of living crisis.

“Boohoo customers are starting to return products more often, which suggests that people are starting to realise they do not need as many ‘going out’ clothes.”

Once a stock market darling, Boohoo has lost almost half of its value so far this year.

easyJet

Tom Sparke, of the fund manager GDIM, said that investors should avoid businesses that are sensitive to the health of the economy and consumer confidence, as rising interest rates threaten to stifle growth.

He highlighted the airline easyJet, where investors have lost 35pc of their money in the year to date.

“Travel and leisure companies such as easyJet are going to be the most vulnerable,” he said. “They are highly sensitive to the health of the economy and the consumer. Investors should be looking instead at sectors that have robust spending, in areas such as healthcare.”

However, City analysts think that the stock could bounce back when the economy recovers, opening up a possible buying opportunity for investors in the long term.

Moonpig

Ms Streeter said that the card retailer Moonpig, which listed in London in February last year and has since dropped 47pc, was also vulnerable.

"It invested heavily in marketing spend, as they needed to grow awareness about their brand," Ms Streeter said.

"But with the cost of living crisis and many consumers now being encouraged to save more by higher rates, it is going to be increasingly difficult to convince people to spend £5 on a card when you can get similar products elsewhere for much cheaper."

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