The Federal Reserve is stuck between a rock and a hard place as it tries to navigate its dual mandate — full employment and price stability — against the shockwaves triggered by President Donald Trump’s blanket tariffs on global trade partners.
Markets have already felt the heat. A two-day sell-off in the first week of April quickly gave the S&P 500 a 10% haircut, erasing trillions of dollars in stock market value. The tech-heavy Nasdaq-100 fared even worse, falling into bear market territory.
“With the market poised to finish the worst week since March 2020, the beginning of the COVID-19 pandemic, investors might be tempted to sell out of their equity positions,” says Henry Yoshida, CEO and co-founder of Rocket Dollar. “However, I’d advise investors to keep a long-term perspective and view the recent sell-off and possible recession as a ‘more bang for your buck’ buying opportunity.”
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While investors can buy the dip, the dilemma for the Fed is whether to focus on rising prices or weakening economic growth to ensure a soft landing for the economy. Normally, it can prioritize one or the other, but tariffs raise input costs across the board while also hurting trade-sensitive sectors like manufacturing and retail.
That could potentially create a tough mix of higher inflation and lower output. The worst-case scenario — one Fed Chair Jerome Powell has tried to steer away from — is stagflation: a period of rising prices paired with slowing or even negative economic growth.
“Stagflation is a difficult macroeconomic scenario with unique policy challenges,” says Anessa Custovic, chief investment officer at Cardinal Retirement Planning Inc. “There are competing factors at play during stagflation, like high unemployment, weak demand and rising inflation.”
Stagflation is worse than plain inflation or a typical recession because it effectively ties the Fed’s hands. Cut rates to stimulate growth, and you risk fueling inflation. Raise rates to fight inflation, and you deepen the downturn. It’s a lose-lose situation for the Fed and consumers.
“Stagflation is difficult to tackle from a policy perspective, as actions that counteract inflation (i.e., higher interest rates, decreasing the money supply) may exacerbate the level of unemployment and slow the economy further,” says Daniel Dusina, chief investment officer at Blue Chip Partners.
That being said, there are ways for investors to blunt the impact. Some stocks tend to hold up better in a stagflationary environment thanks to structural advantages like pricing power, sticky demand or commodity-linked revenues.
“Companies that may do well in stagflationary environments tend to be diversified and very large,” Custovic says. “This makes it more likely that they can control input costs or, at the very least, negotiate more effectively with vendors than smaller firms.”
Here are seven of the best stagflation stocks to buy, according to experts:
— Costco Wholesale Corp. (ticker: COST)
— Berkshire Hathaway Inc. (BRK.B, BRK.A)
— Microsoft Corp. (MSFT)
— Exxon Mobil Corp. (XOM)
— Kinder Morgan Inc. (KMI)
— NNN REIT Inc. (NNN)
— Franco-Nevada Corp. (FNV)
Costco Wholesale Corp. (COST)
“I still like Costco during this environment, especially during an uncertain Trump administration where the threat of tariffs will impact many retailers,” Custovic explains. “They have diversified product lines that are mostly consumer staples and are able to keep prices low in part due to their membership-based pricing model.” The company currently pays a modest 0.5% dividend yield.
Costco relies on its membership-based model to support strong free cash flow and consistent earnings growth. The company also boasts a superb balance sheet, with more cash than total debt as of the most recent quarter, making it less leveraged than competitors. However, Costco consistently trades at a premium. Its forward price-to-earnings ratio is above 50, even after the recent downturn.
Berkshire Hathaway Inc. (BRK.B, BRK.A)
“Another company that might fare well is Berkshire Hathaway — it is behaving almost as a defensive stock right now, with a substantial holding of Treasurys and cash on hand,” Custovic says. “It’s diversified with its holdings and remains very responsive to changes in the current macroeconomic and market environment.” Year to date, Berkshire Hathaway is actually up 8.9% through April 4, even after the rapid sell-off.
Berkshire owns a wide range of private businesses including GEICO, BNSF Railway, Dairy Queen, Lubrizol and Clayton Homes, in addition to a public equity portfolio filled with some of America’s largest blue-chip companies. It’s also highly tax-efficient, as it doesn’t pay dividends, allowing capital to compound internally. However, shares are somewhat expensive, currently trading at 1.6 times book value.
Microsoft Corp. (MSFT)
“Generating a consistent and growing level of earnings and free cash flow through different types of adverse economic environments can indicate that management is able to prudently allocate capital while maintaining a competitive advantage in their industry,” Dusina says. Few companies do this better than Microsoft, which sports double-digit margins thanks to its diversified software business.
Microsoft’s business model benefits from strong competitive moats, including high switching costs, entrenched market share and recurring subscription revenue. Because much of Microsoft’s revenue largely comes from software and cloud services rather than physical goods, it’s also less exposed to the direct cost pressures of Trump’s tariffs, making it more resilient on the bottom line.
[Read: Will the Stock Market Crash in 2025?]
Exxon Mobil Corp. (XOM)
“Traditionally, energy companies have done well during inflationary environments,” says James Mick, managing director and senior portfolio manager at Tortoise Capital. “2022 was an excellent example when inflation was exceptionally high and broad energy equities, as represented by the S&P Energy Select Sector Index, returned around 65% while the S&P 500 lost 18%.”
Energy investing tends to be boom-or-bust, but integrated giants like Exxon Mobil are a safer bet than smaller exploration and production firms thanks to their diversified operations, stronger operating cash flow and lower debt levels — key advantages if energy prices collapse. ExxonMobil’s lower beta of 0.6 also means it’s less sensitive than the broader market, helping buoy portfolios during high volatility.
Kinder Morgan Inc. (KMI)
“Even if commodity prices do not rise, we believe energy infrastructure companies would be well positioned due to the ability to pass through increased costs via tariff escalators tied to inflation,” Mick explains. “The timing of increased rates varies by contract, with the most observable being liquids pipelines that generally implement this on a six-month lag to annual inflation.”
A great example of a large player in the energy infrastructure space is Kinder Morgan, a midstream company that operates natural gas and crude oil pipelines and terminals. This makes it unlike ExxonMobil, which is primarily involved in upstream exploration and production. This fee-based model generates steady, predictable free cash flow, helping support its above-average dividend yield of 4.6%.
NNN REIT Inc. (NNN)
Midstream energy infrastructure companies aren’t the only ones able to pass costs on to customers — so-called triple-net lease real estate investment trusts (REITs) can, too. A strong example is NNN REIT, which offers a 5.7% dividend yield. This REIT owns over 3,500 retail properties across 49 states and has increased annual dividends for over 35 consecutive years, a sign of financial strength.
In a triple-net lease, tenants are responsible for property taxes, insurance and maintenance, meaning rising costs don’t hit the landlord’s bottom line. If prices rise and occupancy stays stable, NNN REIT’s income stream remains resilient. The client base is also diversified, with no single tenant accounting for a large portion of revenue. NNN REIT’s biggest tenant, convenience store 7-Eleven, represents just 4.5%.
Franco-Nevada Corp. (FNV)
Gold is uniquely suited to stagflation because it tends to hold value during both inflationary spikes and periods of economic weakness. While you can gain exposure through mining stocks, they carry risks like high operating leverage and vulnerability to political or environmental disruptions. In contrast, gold streaming companies offer a lower-risk alternative. These are basically royalty companies for gold.
Franco-Nevada, the largest gold streamer, provides upfront capital to miners in exchange for a share of future production at fixed, discounted prices. This model delivers exceptionally high profit margins with minimal operational exposure, and the company maintains very little debt, making it a capital-light way to bet on rising gold prices. Franco-Nevada currently pays a 1% dividend yield.
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7 Best Stagflation Stocks to Buy in 2025 originally appeared on usnews.com
Update 04/07/25: This story was published at an earlier date and has been updated with new information.
