Identifying the top inflation investments for 2022.
Inflation, as you might have noticed, is getting out of hand. The Labor Department’s latest numbers show the consumer price index rising 7.5% in January from the same month a year before, the highest reading in 40 years. This erosion in purchasing power hurts not only the average consumer, who isn’t making 7.5% more than a year ago, but also the typical investor, who is perhaps not positioned to reap rewards from rising prices, which have proven to be far from transitory. That said, a number of businesses tend to actually benefit from rising prices, so if you’d like to position your portfolio to beat inflation in times of higher costs, here are seven of the best “inflation stocks” to buy.
EOG Resources Inc. (ticker: EOG)
The energy sector is perhaps the most famously inflation-resistant sector of the stock market, and for good reason: Inflation itself often reflects rising energy prices, which in turn have knock-on effects on other goods and services, since the price of all economic activities has energy as an input cost. EOG Resources is a Houston-based oil and gas explorer and producer, and prices of both commodities have jumped in 2022, each advancing 20% or more so far. Named as one of U.S. News’ 10 best stocks to buy for 2022, EOG has been flying high in the early innings of the year as a healthy balance sheet and a 2.7% dividend make EOG an attractive pick.
PepsiCo Inc. (PEP)
Food and beverage giant PepsiCo might not be the first name that pops into your head when you think about protecting your portfolio from inflation, but it’s got a couple of major things going for it. First, having a strong brand is always a net positive — regardless of industry — when attempting to pass on costs to customers. Second, raising prices tends to be a lot easier with low-dollar items, and PepsiCo’s enviable portfolio of snack brands, something rival Coca-Cola Co. (KO) lacks, boasts an uncanny ability to pass on costs to a willing consumer. Look no further than Frito-Lay North America Inc., Pepsi’s second-largest division by revenue, next to only its North American beverage operations, for its compatibility with rising prices. Frito-Lay, with brands like Doritos, Lay’s, Cheetos, Ruffles, Fritos, Tostitos and more, saw fourth-quarter revenue rise 13% despite a mere 4% increase in volume.
Newmont Corp. (NEM)
The days when the value of the U.S. dollar was backed up by cold, hard bars of gold bullion are long gone. Since President Richard Nixon did away with the gold standard for good in 1971, the dollar-denominated precious metal has been given permission to run: An ounce of gold costs more than six times what it did back then, even after adjusting for inflation, while inflation has eroded more than 85% of the greenback’s value. The Denver-based Newmont is primarily a gold producer, but it also produces and explores for copper, silver, zinc and lead. As of late February, gold prices are up about 4%, NEM is up more than 8% and the S&P 500 is down about 10% in 2022.
JD.com Inc. (JD)
Although perhaps not a traditional first choice when it comes to stocks that are good inflation investments, Chinese e-commerce giant JD.com can indeed be a good way to guard against rising U.S. prices in 2022. Part of the reason is straightforward: Emerging markets tend to do well when inflation is high, as they often track commodities. Moreover, the U.S. dollar has weakened notably against the yuan over the last year, trading at its lowest levels in about four years — making every yuan that JD.com earns worth more in dollar-denominated earnings. For an e-commerce platform, JD’s penetration of the massive Chinese market is impressive, with more than 552 million active customer accounts through 2021’s fiscal third quarter, an improvement of more than 110 million from just 12 months prior. Plus, with Alibaba Group Holding Ltd. (BABA) still trying to make nice with Chinese regulators, JD’s largest rival is hindered for the foreseeable future.
Mosaic Co. (MOS)
A producer of key inputs for the agricultural market like potash and phosphate, this Tampa, Florida-based company essentially traffics in chemical commodities. It’s been a great business thus far in 2022, with markets rewarding shareholders to the tune of 12% returns while the broader stock market has languished. Still priced cheaply at less than 10 times earnings and about 5.5 times forward earnings, MOS also has all the appeal of a value stock at a time investors are rotating from growth to value. Mosaic’s joint venture with Canada’s Nutrien Ltd. (NTR), Canpotex, just reached a deal to supply China and India for $590 per metric ton for potash fertilizer through the end of the year, more than double year-ago levels. Potash fertilizer prices are soaring largely because a key component, natural gas, is also quickly becoming more expensive in the inflationary environment.
Freeport-McMoRan Inc. (FCX)
If it ain’t broke, don’t fix it. In the 21st century, investing in commodities, emerging markets and cyclical stocks during times of higher inflation has been a lucrative strategy. Phoenix-based $61 billion copper behemoth Freeport-McMoran has predictably been reaping rewards from rising commodities as copper prices, a famous indicator of improving economic conditions, have more than doubled, from $2.17 per pound at 2020 lows to more than $4.50 per pound today. Operating cash flows in FCX’s most recent quarter jumped 71% from the same period a year before, all while the company paid down debt, approved a new share buyback program and grew its dividend. Freeport-McMoran also produces gold and molybdenum, among other commodities.
Marathon Oil Corp. (MRO)
One of the best performers in the entire S&P 500 through late February is Marathon Oil, for many of the familiar reasons that made companies like EOG Resources thrive in an inflationary environment: This oil and natural gas producer benefits from rising commodities prices, especially since its reserves are worth dramatically more than they were just a few short months ago following oil’s rally. At the end of 2021, Marathon Oil reported proved reserves of more than 1.1 billion barrels of oil equivalent, up 14% from a year before. As a bonus, MRO believes it can operate at break-even even if oil prices were beneath $35 a barrel, just over one-third oil’s current level.
Top seven stocks that are good inflation investments:
— EOG Resources Inc. (EOG)
— PepsiCo Inc. (PEP)
— Newmont Corp. (NEM)
— JD.com Inc. (JD)
— Mosaic Co. (MOS)
— Freeport-McMoRan Inc. (FCX)
— Marathon Oil Corp. (MRO)
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7 Stocks That Are Good Inflation Investments originally appeared on usnews.com
