4 Stocks With Strong Interest Coverage to Buy as Yields Rise

U.S. equities declined ahead of the Federal Reserve decision as higher Treasury yields and Middle East-related energy-supply risks pressured risk assets: the Dow fell 0.63%, the S&P 500 lost 0.45%, and the Nasdaq dropped 0.78%. Zacks highlighted DiamondRock Hospitality, Vertiv, Mueller Water Products and Phibro Animal Health as companies with strong interest coverage and favorable ranks, positioning them as relatively resilient to elevated borrowing costs. Consensus forecasts call for particularly strong current-year growth at Vertiv, with sales up 36.9% and EPS up 59.3%.

Analysis

The screen’s core flaw is that interest coverage is backward-looking and says little about equity duration or refinancing sensitivity. VRT can retain ample debt-service capacity while still de-rate sharply if long yields rise: its valuation embeds a multiyear AI data-center power/cooling buildout, making the terminal-growth assumption more important than near-term interest expense. Conversely, MWA’s replacement-water infrastructure exposure has relatively inelastic demand and can pass through metal and labor inflation over contract cycles, making it the cleanest quality-cyclical expression if yields remain elevated for 1-3 months.

DRH is the weakest fit for a higher-for-longer regime despite coverage: hotel cash flow is simultaneously exposed to corporate/leisure demand, labor costs, and higher cap rates, so lower financing risk does not prevent NAV and multiple pressure. PAHC offers a more defensible earnings profile, but its upside depends on livestock economics and distribution/inventory normalization rather than rates; it is not a direct hedge against the macro shock. The second-order beneficiary of sustained energy inflation is not necessarily broad Energy, but water-infrastructure and grid/power equipment suppliers with pricing power where municipal and data-center projects cannot easily be deferred.

Near term, the rate decision and Treasury term-premium response matter more than this factor screen. A post-decision decline in the 10-year yield would likely produce the largest reflexive upside in VRT, but that is a tactical duration trade, not validation of the balance-sheet thesis. Over 6-18 months, VRT’s order conversion, backlog margins and working-capital needs must support expectations; any moderation in hyperscaler capex or cooling/power backlog growth would expose a crowded valuation. The contrarian view is that energy-driven inflation can delay rate cuts without producing sufficiently strong nominal demand to protect cyclical hotel earnings.

Key Decisions for Investors

• Prefer long MWA versus short DRH over the next 1-3 months: both are less levered than weaker cyclicals, but MWA has infrastructure replacement and price/cost pass-through support while DRH carries consumer-demand and cap-rate risk. Reassess if the 10-year Treasury yield falls materially after the Fed or if DRH’s forward RevPAR guidance accelerates.
• Do not initiate a fresh strategic VRT long solely on interest coverage. Use a pullback following a yield spike to add only if management reaffirmation shows backlog growth, project margins and cash conversion remain intact; size as a 6-12 month AI power-infrastructure position with a stop/review on a material backlog-growth deceleration or hyperscaler capex cut.
• Maintain PAHC as a watch-list defensive growth candidate rather than a rates trade. Upgrade only after confirming that animal-health volumes and gross-margin expansion—not consensus estimate revisions—are driving results; a deterioration in livestock producer profitability would falsify the thesis.
• For macro hedging through the Fed decision, avoid treating the four-stock basket as a quality-credit hedge. A sustained move higher in long-end yields favors reducing high-multiple infrastructure duration exposure (VRT) before reducing MWA; a lower-yield outcome is the catalyst for a tactical VRT rebound.