Stagflation is no barrier to these seven stocks.
U.S. inflation fell recently, with consumer price index readings for July coming in at an 8.5% year-over-year increase, down from 9.1% in June. However, inflation still remains well above the Federal Reserve’s 2% target. Worryingly, gross domestic product fell for two straight quarters, meeting the technical definition of a recession. As a result, some investors are worried about stagflation, a dangerous combination of elevated inflation and stagnating economic growth. A stagflationary environment wreaks havoc on equity, fixed-income and cash assets, leaving investors with few shelters from the storm. However, some stocks might be better poised to handle stagflation. For example, companies in the consumer staples sector tend to be more resilient due to the evergreen and essential nature of their products. Moreover, consumer staples stocks can pass cost increases on to their customers, thus maintaining profitability and earnings. Here are seven of the best stocks to buy for stagflation.
Barrick Gold Corp. (ticker: GOLD)
A historically well-performing asset during periods of stagflation is gold. As a store of value, gold is a top flight-to-safety asset useful when stocks and bonds fall in tandem. Gold tends to appreciate during times of heightened economic uncertainty and high volatility, which stagflation can create. A great way to gain exposure to gold prices without purchasing physical bullion or an exchange-traded fund is via a gold miner stock like Barrick Gold. With a market capitalization of $29 billion, Barrick Gold is one of the largest gold miners worldwide, with mines across North America, Latin America, Africa, the Middle East and the Asia-Pacific region. The company had an outstanding second-quarter earnings report, increasing net income by 18.7% versus the same quarter a year earlier. If gold prices surge again, investors can expect Barrick’s fundamentals to improve further.
American Tower Corp. (AMT)
Real estate investment trusts, or REITs, can perform well under inflationary conditions as the underlying properties pass on costs to tenants via increased rents. However, they can lose value during a recession when tenants face budget constraints. An exception may be American Tower Corp., which manages over 220,000 cell tower sites critical to wireless communications networks. By relying on the oligopolistic, evergreen and defensive nature of the telecommunications industry, American Tower might be better poised to withstand stagflation compared to residential or commercial REITs. Major lessees of AMT properties include AT&T Inc. (T) and T-Mobile US Inc. (TMUS). The company also has international tenants, whose rents and transition to 5G contributed strongly to a 17% year-over-year revenue increase in the second quarter.
Costco Wholesale Corp. (COST)
Costco’s combination of low prices, strong customer service and wide product selection helped it deliver above-average earnings throughout the COVID-19 pandemic and over the first half of 2022. Its membership subscription model drives strong recurring revenue, and its vast array of products and services from groceries, health and beauty products, hardware, appliances, electronics, furniture, jewelry, tires and even gas help to capture a wide customer demographic. Even with consumer spending slowdowns, Costco is likely to be less hard-hit than its competitors due to its economy of scale and cost leadership. Not to mention its intangible advantages, such as free samples, popular brands like Kirkland, and the famously cheap $1.50 hot-dog-and-drink combo.
Coca-Cola Co. (KO)
Warren Buffett has held shares of Coca-Cola for decades, and today it remains one of his largest holdings for good reason. The stock has endured multiple economic crises, including the high interest rate environment of the 1980s, the dot-com bubble, the 2008 financial crisis and the 2020 COVID-19 crash to deliver an 8,066% cumulative return since Aug. 20, 1982. Having gone through numerous forward stock splits and buybacks, Coca-Cola excels at delivering value for shareholders. Its longevity and resilience to economic downturns come from its network effect, with a vast global consumer base drinking over 500 brands such as Diet Coke, Coca-Cola Zero, Sprite, Fanta, Minute Maid and Powerade. Many investors hold Coca-Cola for its long-standing and ever-increasing dividend, which has been paid out for more than 50 consecutive years and currently yields 2.8%.
Kellogg Co. (K)
Kellogg Co. makes some of the most recognizable packaged-good products in American pantries, with notable brands including Rice Krispies cereal, Pop-Tart pastries and Eggo waffles. Kellogg is a great example of a low-volatility consumer staple stock with a beta of just 0.43, making it less than half as volatile as the overall market. The company recently delivered solid second-quarter 2022 earnings results, reporting adjusted earnings per share of $1.18, which surpassed consensus analyst estimates. Top-line revenue and bottom-line net income increased by 8.7% and 3.5%, respectively, backed by increased sales in snack, noodle and international cereal products. Through Aug. 12, shares of Kellogg are up 19.4% this year, compared to the S&P 500’s 10.2% loss.
Pfizer Inc. (PFE)
Pfizer saw its earnings and share price surge during the COVID-19 pandemic due to strong demand for its Comirnaty vaccine, which was distributed worldwide. Sales continue to trend high, with management forecasting revenue from Comirnaty to hit nearly $32 billion through the end of 2022. Recent tail winds that could help Pfizer meet this revenue guidance include the approval of booster doses of its COVID vaccine for 5-to-11-year-olds, Food and Drug Administration approval of its Paxlovid antiviral pills, the possibility of a fourth COVID booster shot and the ongoing monkeypox outbreak. Given the evergreen, essential nature of health care, Pfizer profitability could remain strong and steady even if stagflation occurs, as consumer demand would likely remain stable despite slowing growth and high prices. The stock also pays an impressive dividend yield of 3.2%.
Nutrien Ltd. (NTR)
Nutrien is one of Canada’s largest agricultural producers, providing an assortment of crop inputs such as potash, nitrogen, phosphate, sulfate nutrients and seeds through over 2,000 retail locations. If stagflation occurs and food prices soar higher, Nutrien is well-positioned to capitalize on increased demand for its products and services. The current Russian invasion of Ukraine has been a strong tail wind for Nutrien, as higher demand for potash in the eastern European region helped sales soar. For the second quarter, Nutrien’s profits increased from $1.1 billion in the same quarter last year to $3.6 billion. The company also grew earnings to $4.99 billion from $1.25 billion, and free cash flow to $3.4 billion from $1.66 billion. Including dividends, shares of Nutrien are up 24.1% in 2022 through Aug. 12, and management will be buying back 10% of the outstanding stock in the near future.
7 best stagflation stocks to buy:
— Barrick Gold Corp. (GOLD)
— American Tower Corp. (AMT)
— Costco Wholesale Corp. (COST)
— Coca-Cola Co. (KO)
— Kellogg Co. (K)
— Pfizer Inc. (PFE)
— Nutrien Ltd. (NTR)
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7 Best Stagflation Stocks to Buy originally appeared on usnews.com
Update 08/15/22: This story was published at an earlier date and has been updated with new information.
