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The First of Several Rate Hikes is Coming Next Week. Now What?

The Fed Chair made it clear on Friday that the Fed will be raising rates starting next and continuing throughout the year. Where can microcap investors find value?

Janet Yellen couldn’t have been clearer. The Federal Reserve Chair broadcast on Friday that the Fed will definitely be raising the Federal Funds Rate when it meets next week. Moreover, it won’t be the last time we see a rate increase this year. We’ve spoken to several economists and Fed watchers who think 2017 will see at least three and maybe four rate hikes.

Video source: The New York Times

While we’ve been focusing primarily on the high growth segments of the microcap economy such as biotechnology and application software, we would be remiss if we didn’t highlight other potential opportunities or special situations. In fact, it would be stubborn and nearsighted to ignore economic realities, and it’s not often that the Fed so clearly signals its intentions.

It’s no secret that the financial sector, broadly defined, will be a focus for many investors in a rising rate environment. Finding microcap values, however, can be challenging. Most of the banks, brokerage firms and insurers whose margins will welcome higher interest rates are on the large cap end of the spectrum, but there are smaller cap values to be found if you just dig a little.

Some of the names we’re watching include: First United (FUNC), Investors Heritage Capital (IHRC) and Kansas City Life Insurance (KCLI).

First United Corp. (NASDAQ: FUNC)

First United is a regional bank holding company headquartered in Maryland. The company amended its 2015 10-K a couple of months ago and appears to be late with its 10-K for 2016. Stock is up 50% in 8 months but still only $91 million market cap. We’ll be keeping an eye open for that annual filing…

Investors Heritage Capital (OTC QB: IHRC)

Investors Heritage Capital is a holding company principally engaged in life insurance. A smaller subsidiary provides advance funding of funerals in exchange for the assignment of life insurance policies from other unaffiliated entities. The stock trades by appointment on the QB tier of OTC Markets, but at only $19 million market cap it’s one we’ll be watching closely.

Kansas City Life Insurance (OTC QX: KCLI)

Many of you may be familiar with Kansas City Life. Over a year ago, the board made the wise and rare decision to de-list from Nasdaq, citing in its proxy that “the costs of being an SEC reporting company outweigh the benefits and, thus, it is no longer in the best interests of the Company or of our shareholders for us to remain an SEC reporting company.” The company was too large (122 years old, 500,000+ policyholders in 48 states and DC) to stay hidden, however, and you can find it on the premier QX tier of OTC. It may be the quietest $450 million market cap company around.

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