Inflation may have peaked in 2022, but it remains well above the Federal Reserve’s long-term target of 2%, with the consumer price index rising 0.4% on a monthly basis in April and 4.9% over the past year. Bank of America recently compiled a pro-inflation 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.
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Here are seven inflation investments for investors looking to protect their portfolios:
| Stock | Implied upside over May 9 closing price |
| Mosaic Co. (ticker: MOS) | 85.6% |
| APA Corp. (APA) | 80.9% |
| Applied Materials Inc. (AMAT) | 31.8% |
| Halliburton Co. (HAL) | 49.5% |
| Advanced Micro Devices Inc. (AMD) | 3.1% |
| Tapestry Inc. (TPR) | 43.6% |
| Western Digital Corp. (WDC) | 48.8% |
Mosaic Co. (MOS)
Mosaic produces concentrated phosphate and potash crop nutrients for the agricultural industry. Fertilizer prices surged in 2022 after Russia invaded Ukraine. Analyst Steve Byrne says Mosaic has a “favorable multiyear earnings outlook,” and management issued positive commentary on its recent earnings call. Input cost deflation should support phosphate margins, battery industry demand for phosphates will continue to grow and Mosaic is investing aggressively in high-growth projects in 2023. Byrne says falling nitrogen prices are beneficial to Mosaic’s phosphate margins, and Brazilian growth will be a tailwind. Bank of America has a “buy” rating and $69 price target for MOS stock, which closed at $37.17 on May 9.
APA Corp. (APA)
Formerly known as Apache, APA is a major U.S. oil and gas exploration and production company. Analyst Doug Leggate says APA’s fourth-quarter performance was particularly impressive. The company generated $1.4 billion in cash flow, which helped fund $620 million in capital returns in the quarter. Leggate says APA has repurchased roughly 15% of its shares since it launched its buyback program in the fourth quarter of 2021. He estimates the company will repurchase another 5% to 8% of its stock in 2023. Bank of America has a “buy” rating and $60 price target for APA stock, which closed at $33.16 on May 9.
Applied Materials Inc. (AMAT)
Applied Materials is the leading producer of wafer fabrication equipment for the semiconductor industry. Analyst Vivek Arya says the company’s new Sculpta pattern shaping and VeritySEM 10 electron microscope systems create an opportunity for Applied Materials to expand into the $2 billion patterning market. While Applied Materials is not immune to memory market weakness, Arya says the company has record backlogs in both semiconductor systems and applied global services and its services segment growth should offset memory market headwinds in 2023. Bank of America has a “buy” rating and $150 price target for AMAT stock, which closed at $113.84 on May 9.
Halliburton Co. (HAL)
Halliburton is a leading U.S. oilfield services company. Even after rallying oil prices in recent years, Halliburton shares remain attractively valued at just 8.3 times forward earnings. Analyst Chase Mulvehill says investors don’t fully appreciate Halliburton’s international growth opportunities. Halliburton recently guided for 20% free cash flow growth in 2023, raised its dividend by 33% and announced it will return more than half its free cash flow to shareholders this year. Mulvehill projects $1.8 billion in FCF and 36.4% earnings growth in 2023. Bank of America has a “buy” rating and $45 price target for HAL stock, which closed at $30.10 on May 9.
Advanced Micro Devices Inc. (AMD)
Semiconductor company Advanced Micro Devices produces personal computer processors, and it has been gaining market share from leader Intel Corp. (INTC) in the data center chip market in recent years. Arya says CPU demand dropped sharply in the fourth quarter, driven by weakness in notebook, desktop and server demand. However, Arya says Intel’s CPU sales dropped far more than AMD’s did in the quarter, suggesting AMD is still gaining market share from Intel even in a weak market. Bank of America has a “buy” rating and $98 price target for AMD stock, which closed at $95.06 on May 9.
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 luxury-focused customer base. Analyst Lorraine Hutchinson says Tapestry’s pricing power has helped it grow earnings even in a difficult macroeconomic backdrop, and she says the company’s direct-to-consumer model differentiates it from peers. Hutchinson says Kate Spade sales were strong during the holiday season, and the company has long-term growth opportunities in China. Bank of America has a “buy” rating and $55 price target for TPR stock, which closed at $38.29 on May 9.
Western Digital Corp. (WDC)
Western Digital produces storage solutions for data centers, mobile devices and personal computers. Analyst Wamsi Mohan says the next several quarters will be challenging for Western Digital given soft end-market demand, but he is bullish on the company’s longer-term outlook and says it has plenty of liquidity to manage the cyclical downturn. Western Digital is reducing gross capital expenditures from $3.2 billion to $2.3 billion in fiscal 2023. Mohan projects revenue will drop 32.7% in 2023 but rebound by 18.7% in 2024. Bank of America has a “buy” rating and $50 price target for WDC stock, which closed at $33.60 on May 9.
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7 Stocks That Are Good Inflation Investments originally appeared on usnews.com
Update 05/10/23: This story was published at an earlier date and has been updated with new information.
