4 Stocks With Strong Interest Coverage to Buy as Yields Rise

Against elevated Treasury yields and a risk-off session that saw the Dow fall 0.63%, Zacks screened four stocks with above-industry interest coverage: DiamondRock Hospitality, Vertiv, Mueller Water Products and Phibro Animal Health. Vertiv has the strongest forecast growth, with consensus calling for 36.9% sales growth and 59.3% EPS growth in the current fiscal year; DiamondRock is projected to grow sales 2.9% and EPS 14.8%. The selections emphasize debt-servicing resilience as higher borrowing costs and Middle East-driven energy-price risks raise inflation and financing concerns.

Analysis

The screen is not an investable catalyst by itself: interest coverage is backward-looking and can be flattered by temporarily elevated EBIT or low fixed coupons. The relevant sensitivity is refinancing schedule and floating-rate exposure, neither of which is supplied. In a sustained higher-for-longer regime, equity markets will reward duration of cash flows and balance-sheet optionality rather than a static coverage ratio; VRT's valuation remains materially more exposed to AI-capex expectation changes than to incremental interest expense.

VRT is the only name where operational momentum could overwhelm the rates headwind over the next 1-3 quarters, but its upside requires continued hyperscaler/data-center order conversion and no material supply-chain or project-execution bottleneck. DRH has the weakest macro asymmetry: hotel RevPAR and group demand can soften quickly if higher energy costs erode discretionary travel, while REIT multiples are directly rate-sensitive. MWA offers a more differentiated 6-18 month setup, as municipal water replacement spending is relatively non-discretionary and funding cycles can support volume even in a softer economy; PAHC needs evidence that margin improvement is durable rather than merely a favorable mix or input-cost cycle.

Contrarianly, the stronger expression of higher yields may be shorting highly levered, refinancing-dependent real estate rather than buying a hotel REIT selected on coverage. A modestly better interest burden does not offset DRH's long-duration valuation exposure if real yields rise further. Conversely, MWA's recent relative weakness creates a cleaner estimate-revision and multiple-recovery setup if municipal orders accelerate, with less consensus crowding than AI infrastructure.

Key Decisions for Investors

• Maintain VRT as a tactical long only on post-earnings backlog, book-to-bill, and margin confirmation; use a 3-6 month horizon and cap position size given AI-infrastructure multiple risk. Exit if orders decelerate materially or management reduces full-year sales/margin guidance; a 15-20% drawdown is plausible on an AI-capex de-rating even with intact fundamentals.
• Initiate a 6-12 month long MWA / short DRH pair, sized beta-neutral. The thesis is defensive infrastructure replacement and potential earnings revision upside at MWA versus DRH's combined real-yield and consumer-demand sensitivity; target 10-15% relative return, reassess if 10-year real yields decline materially or DRH reports sustained RevPAR acceleration.
• Avoid adding DRH on the basis of the screen alone. Upgrade to a tactical long only after verifying debt maturities, fixed/floating mix, and forward FFO coverage, alongside evidence that group and leisure booking pace remains positive through the next quarter.
• Keep PAHC on watch rather than initiate: require confirmation of volume-led growth, gross-margin trajectory, and customer inventory normalization at the next earnings release. A long becomes attractive only if those metrics support upward estimates; otherwise its modest expected growth does not justify idiosyncratic execution risk.