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As inflation lingers at a generational high, some stocks stand out for their ability to help investors hedge against the effect of high interest rates better than others. That’s the message from Trivariate Research, which argues that with inflation staying stubbornly above the Federal Reserve’s 2% annual target, investors have become increasingly worried about the impediments companies face from higher borrowing costs and the need to keep raising prices. “Subsequent to the all-time low interest rate in the history of the United States, post-Covid, dynamics changed,” wrote Trivariate Research founder Adam Parker, former Morgan Stanley chief U.S. equity strategist, in a recent note. “What ensued was a massive negative correlation between the perception about interest rates and the valuation of growth companies from late in 2021.” But despite price increases running at elevated levels, interest rates and inflationary risks are affecting stocks less and less as time goes on. While a basket of high-quality growth stocks used to be negatively correlated to inflation, meaning their stock prices suffered as inflation turned higher, Trivariate says the relationship has since changed. “Today, the correlation of the high-quality growth basket to our inflation basket is zero,” the firm said. In the same report, Trivariate Research shared its basket of high-quality names in the technology sector with a near-zero correlation to its inflation basket. Here are a few of the stocks from the list: One company named was Keysight Technologies . Shares of the electronic equipment manufacturer have fallen almost 10% this year. Even so, Morgan Stanley — which is overweight on the stock — earlier this month named Keysight a “top pick.” “We believe estimates for FY24 have bottomed post ~12% earnings cut last quarter, with valuation (~20x FY25) reasonable against exposure,” Morgan Stanley analyst Meta Marshall wrote. “Stable orders plus view of recovery timeline could act as a catalyst.” Also included in Trivariate’s basket was Procore Technologies , which writes management software for the construction industry. The stock is relatively unchanged year to date. In April, JPMorgan named Procore one of its top picks, citing its position as the leading provider of construction-focused software as a service (SaaS), cloud-based platform. “Procore is exposed to a total of ~$11 trillion of annual worldwide construction volumes. Multiplying that figure by the share of spen[d] on IT solutions (1.7%) and then calculating the portion of IT budget directed at application software (7.3%) translates into ~$13 billion global” total addressable market, the bank wrote. Cloud-computing stock Nutanix has soared 52% this year, but Raymond James believes there’s further upside ahead. The firm recently upgraded Nutanix to an outperform rating from market perform. “We have gained a better appreciation for Nutanix’s opportunity to gain share from VMware following its acquisition by Broadcom,” analyst Simon Leopold wrote. “Broadcom’s efforts to improve growth and performance for VMware have led to bundling and higher than expected price hikes, which will lead some customers to seek alternatives in certain instances from Nutanix.” — CNBC’s Michael Bloom contributed to this report.
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