Best Stocks for Inflation – 4 Companies to Beat the Market
Lately, there’s been a lot of talk about the best stocks for inflation as key economic indicators are hitting levels not seen since 2008. While this may be true, the stock market is still making new highs every day. What gives?
Well, for one, the Federal Reserve is still using several of its tools to support the economy. But, this may be changing soon, with the FED saying it’s slowing the purchase of assets starting later this month.
Not only that but with inflation levels hitting a 13 year high, investors are beginning to question whether interest rates will be raised sooner rather than later. Seeing that the U.S yield curve is flattening, expectations are starting to reveal themselves.
Will the FED have the tools it needs to address the rising concerns? Sooner or later, they will need to make a decision.
In the meantime, keep reading to find the best stocks for inflation so your portfolio can prepare for what’s to come.
The Best Stocks for Inflation – “Toll Bridge Businesses”
Warren Buffett has seen it all. He’s been through several recessions, inflationary periods and has still managed over 16% annual growth.
His advice, “In an inflationary world, a toll bridge would be a great thing to own because you’ve laid out the capital costs.” That is to say, companies who have already established themselves in their market and their profits will be (relatively) unchanged given economic conditions.
Best Oil & Gas Stocks: No. 4 Pioneer Natural Resources (NYSE: PXD)
- Market Cap: 44.29B
- Industry: Oil & Gas
- “Toll Bridge” Advantage: “Best in class” breakeven price supported by solid investments.
It’s no secret gas prices are on the rise. Part of the reason why gas prices are soaring is because of the cost of crude oil, which rose above $85 a barrel just this past month. And oil prices are higher on the disrupted supply/demand brought about by the pandemic.
Although nobody likes paying more for gas, oil companies like Pioneer see higher profit margins. As a result of higher margins over the past year, the company is using the additional cash to improve its business.
With Pioneer’s buying of Doublepoint Energy and Parsley Energy, the company is now the largest producer in the Permian. The move allows the company to generate more, for a lower cost.
Not only that, but Pioneer is also rewarding shareholders with a massive variable dividend of $1.51/ share, on top of the $0.56 base.
Looking ahead, Pioneer is in a strong position in the oil market. With profitable margins and a best-in-class breakeven point, Pioneer will be one of the best stocks for inflation as we advance.
Best Bank Stocks: No. 3 JPMorgan Chase (NYSE: JPM)
- Market Cap: 481.92B
- Industry: Banks
- “Toll Bridge” Advantage: Largest bank in the U.S. by AUM.
As I have noted earlier in the article, the U.S yield curve looks to be flattening. The action tends to result from investors expecting interest rates to rise sooner than what the FED is hinting at.
For this reason, banks are some of the best stocks for inflation as rate hikes are generally in store. And what better bank to own than JPMorgan, the largest in the U.S?
On top of this, with consumer prices hitting multi-year highs, JPMorgan will likely benefit from extra credit card & loan purchases.
CEO Jamie Dimon had this to say about the MRQ:
“We are making important investments, including strategic, add-on acquisitions that will drive our firm’s future prospects and position it to grow for decades.”
The biggest bank in the U.S. is outperforming its peers, with net income advancing 24% in Q3 to $11.7 billion. Or, in other words, $3.74 earnings per share.
Best Consumer Brands: No. 2 Nike (NYSE: NKE)
- Market Cap: 269.92B
- Industry: Consumer Goods
- “Toll Bridge” Advantage: Massive moat with enormous brand power.
Typically, you would want to avoid consumer goods brands during times of inflation with materials costs rising. However, Nike is not an average company by any means. Believe it or not, Nike’s stock has performed well historically during times of inflation.
The fan-favorite brand is continuously improving its financials with widening margins and impressive revenue growth.
Furthermore, the corporation is now turning to direct consumer sales, which will increase Nike’s profit margins even higher. In Nike’s latest earnings, direct sales increased 28% to $4.7 billion.
Nike’s consumer engagement will continue to benefit the corporation in the future. The company’s strong moat will allow it to expand its market share. Given these considerations, Nike is one of the best stocks for inflation that has proven worthy in the past.
Best Stocks for Inflation – No. 1 Microsoft (Nasdaq: MSFT)
- Market Cap: 2.56T
- Industry: Software
- “Toll Bridge” Advantage: Superior product portfolio & increased reliance on technology.
Another popular move for investors hoping to avoid the wrath of inflation is big tech. And now, the biggest of the big tech, Microsoft, has recently become the world’s most valuable firm. The tech company has been able to accomplish this through a brilliant portfolio of innovative products.
Microsoft’s latest quarterly earnings were a big one for the company. It saw growth in several key areas, with total revenue growing 22%. In particular, much of the increase comes from Microsoft’s cloud unit up 31% in the quarter.
In addition, other areas of growth to note:
- LinkedIn revenue +42% – Driven by growth in marketing & advertisements.
- Office Commercial Products + 18% – As a result of Office 365 growth.
- Search & News +40% – Driven by increased advertising income.
As you can see, Microsoft is deservingly the most valuable company in the world right now. Its unmatched growth over the past few years, combined with its relentless product expansion, gives it the top spot on the best stocks for inflation list.
Is Now the Time to Start Buying the Best Stocks for Inflation?
Now that the economy is getting back on track, the FED is announcing it will be slowing the purchasing of assets. A move that indicates the FED is beginning to take off the training wheels in terms of economic support. The announcement comes as consumer inflation is picking up in things like food.
With that in mind, these are some of the best stocks for inflation that can help keep your portfolio in the green while economic conditions are changing.
Learn more about the top stocks on the market and how to stay ahead of the latest trends by signing up for the Profit Trends e-letter below. By entering your email, you can gain insight from top experts on the markets hottest trends. Check it out below!
These companies are great examples of “toll bridge businesses” that have already laid the foundation and are reaping the rewards. They have established themselves as market leaders and do everything they can to create a favorable situation for investors.
About Pete Johnson
Pete Johnson is an experienced financial writer and content creator who specializes in equity research and derivatives. He has over ten years of personal investing experience. Digging through 10-K forms and finding hidden gems is his favorite pastime. When Pete isn’t researching stocks or writing, you can find him enjoying the outdoors or working up a sweat exercising.