Analysts recommend these inflation stocks.
The stock market took a hit when the U.S. Labor Department reported the Consumer Price Index jumped 8.6% in the month of May, its largest gain since 1981. The Federal Reserve has aggressively raised interest rates to combat inflation, but many investors fear prices won’t be falling any time soon. Bank of America recently compiled a pro-inflation stock screen to identify stocks that have historically demonstrated a strong positive correlation with inflation. While other companies battle rising costs, inflation may actually help these stocks outperform. Here are seven inflation investments for investors looking to protect their portfolios.
Mosaic Co. (ticker: MOS)
Mosaic produces concentrated phosphate and potash crop nutrients for the agricultural industry. Analyst Steve Byrne says Mosaic’s recent second-quarter guidance update suggests April and May potash and phosphate volumes were likely well below his forecast. However, Byrne says he remains bullish on the mid- and long-term outlook for fertilizers, particularly potash and nitrogen. He says China’s phosphate market may become tighter in the longer-term. After the guidance update, Mosaic shares still trade at just 3.9 times Byrne’s 2022 earnings per share estimate of $12.45. Bank of America has a “buy” rating and $77 price target for MOS stock, which closed at $44.52 on July 5.
APA Corp. (APA)
Formerly known as Apache, APA is a major U.S. oil and gas exploration and production company. Analyst Doug Leggate says investors don’t fully appreciate how much APA’s management team has improved virtually every aspect of the company in recent years, from elevated cash flow to share buybacks to a healthier balance sheet on top of better environmental, social and governance practices. Leggate says management has completely overhauled and streamlined the company’s asset portfolio, positioning APA to potentially buy back 60% of shares over the next three years. Bank of America has a “buy” rating and $68 price target for APA stock, which closed at $32.73 on July 5.
Applied Materials Inc. (AMAT)
Applied Materials is the world’s leading producer of wafer fabrication equipment for the semiconductor industry. Analyst Vivek Arya says shutdowns in Shanghai weighed on Applied Materials’ first-quarter sales, but there were also several things to like about the quarter. Record numbers of orders and a growing backlog suggest the environment remains constrained by supply, not demand. Services revenue was up 15% in the quarter. In addition, Applied Materials bought back $1.8 billion shares in the first quarter, about 2% of total outstanding shares. Bank of America has a “buy” rating and $135 price target for AMAT stock, which closed at $86.00 on July 5.
Halliburton Co. (HAL)
Halliburton is a leading U.S. oilfield services company. Analyst Chase Mulvehill says Halliburton and other oilfield services stocks will benefit from a renewed sense of urgency among oil and gas exploration and production companies to drill new wells. Halliburton shares are up 40.9% year to date, but Mulvehill says they are still cheap at just 12.1 times forward earnings. Mulvehill says an increase in drilling demand coupled with supply chain and labor market tightness has created a very favorable pricing environment for oilfield services stocks. Bank of America has a “buy” rating and $47 price target for HAL stock, which closed at $28.89 on July 5.
Advanced Micro Devices Inc. (AMD)
Semiconductor company Advanced Micro Devices produces personal computer central processing units (CPUs) and graphics processing units (GPUs), as well as server chips for data centers. Arya says AMD’s recent analyst day event highlighted that the company is broadening its product portfolio and expanding its market share in key growth markets. Arya estimates AMD has a massive $300 billion total addressable market, which includes data center, PC, gaming, communications and advanced auto applications. AMD’s next-generation 5nm Genoa server CPU is on track to launch in late 2022. Bank of America has a “buy” rating and $160 price target for AMD stock, which closed at $75.20 on July 5.
SVB Financial Group (SIVB)
SVB Financial is the parent of Silicon Valley Bank, a commercial bank that specializes in technology, life sciences, wineries, and private equity and venture capital firms. SVB shares are down 39% year to date on concerns plummeting tech sector valuations could eventually weigh on SVB’s early-stage VC and PE customers. Analyst Ebrahim Poonawala says SVB’s first-quarter revenue beat and guidance hike should help ease investors’ fears about weakness in the bank’s core business. Poonawala says SVB shares are cheap given its opportunity for 30% annual revenue growth. Bank of America has a “buy” rating and $725 price target for SIVB stock, which closed at $412.41 on July 5.
Tapestry Inc. (TPR)
Tapestry is the parent company of luxury brands Coach, Kate Spade New York and Stuart Weitzman. The company produces accessories, handbags, footwear, fragrances and other products. Rising prices will likely not deter Tapestry’s high-end customer base. Analyst Lorraine Hutchinson says ongoing lockdowns and restrictions in China will negatively impact Tapestry’s fiscal fourth-quarter numbers, but its overall fundamentals remain strong. Hutchinson says Kate Spade is a successful turnaround story, and Coach remains a consistent performer. In addition, the company anticipates $1.6 billion in fiscal 2022 share buybacks. Bank of America has a “buy” rating and $55 price target for TPR stock, which closed at $31.34 on July 5.
7 stocks that are good inflation investments:
— Mosaic Co. (MOS)
— APA Corp. (APA)
— Applied Materials Inc. (AMAT)
— Halliburton Co. (HAL)
— Advanced Micro Devices Inc. (AMD)
— SVB Financial Group (SIVB)
— Tapestry Inc. (TPR)
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7 Stocks That Are Good Inflation Investments originally appeared on usnews.com
Update 07/06/22: This story was published at an earlier date and has been updated with new information.
