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10 Best Stocks for Inflation in 2022

Daniel Rogers

Jun 07, 2022 15:54

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Main Street and Wall Street continue to view inflation as one of their primary worries. Those who have not yet bolstered their portfolios with inflation-protected assets still have time to do so, given the lack of projected respite shortly.

 

In May 2021, when it hit 5 percent, the inflation rate in the United States was already blazing. The growth of the consumer price index reached 7% towards the end of the year.

 

As a result of Russia's invasion of Ukraine in 2022, which triggered (among other things) a significant increase in crude oil prices, domestic gasoline prices are still climbing to this day. In March, inflation growth reached a 40-year high of 8.5 percent, retreated slightly to 8.3 percent in April, and might remain for several more months.

 

"Now we keep the awareness on the supply chain challenges and imbalances that contributed to the increase in product inflation over the last year," says Liz Young, head of the investment strategy at SoFi. "Prices of used automobiles and trucks, household furniture, and numerous food products, for instance, have dominated the news."

 

However, she emphasizes that service data is becoming an increasingly important factor in inflation. "This is significant because services inflation is a more sticky component," she explains, "and one that may be more difficult to curb."

 

As a result, despite the majority of us would prefer to be passed this issue, we must nevertheless safeguard our portfolios from rising costs. The finest inflation investments may be found in various asset classes, including stocks, real estate, commodities, and, to some extent, bonds, given the Federal Reserve's recent hawkishness.

 

Here are the ten most excellent stocks to protect your portfolio against inflation. The stocks and exchange-traded funds (ETFs) on this list offer varying degrees of protection against rising inflation and, in some cases, might continue to perform well even if consumer prices moderate.

10 Best Stocks to Own When Inflation is High

1. Parkev Tatevosian (Netflix) 

Netflix is the best investment to purchase today to combat inflation. The streaming pioneer offers its service for less than $20 a month, making it one of the least expensive forms of entertainment. If you stream daily, as most users do, you will pay less than $1 per day. What if four members of your home stream material daily? That is less than $0.25 a day per person.

 

In these times of inflation, the importance of a superior consumer value offer will only grow. Prices for travel, movie tickets, baseball events, theme parks are increasing. All of this makes Netflix's low pricing appear even more tempting. Currently, Netflix has 222 million customers, a decrease of 200,000 from the previous quarter. This was the first decline in more than a decade and partially explains why the stock is down a staggering 72% from its all-time high. Moreover, management anticipates that the firm will lose two million members during the second quarter.

 

Nevertheless, the market may be overreacting to the bad news. When demand for in-home entertainment skyrocketed during the epidemic, Netflix garnered millions of customers. The increased demand would decrease. There will likely be more than one victor in the streaming battles, even though Netflix now confronts increased competition and a decline in order. Netflix has had a decade's head start on its new competitors.

 

Nevertheless, all of the concerns have reduced Netflix's stock price to a cheap level. With a price-to-earnings ratio of 17.75, it has been the least expensive in the past five years. Netflix is a company that has the potential to do well if inflation endures.

2. Eric Volkman

Some industries are naturally resistant to inflation. One of these is the healthcare industry since no one wishes to reduce spending on their medical requirements regardless of the state of their currency.

 

Medical Properties Trust, a real estate investment trust (REIT) that maintains various healthcare facilities — primarily hospitals — and collects rent from tenants, is a company we like currently. Its portfolio consists of 440 properties in the United States and nine other countries. Its authorized bed count is around 46,000.

 

Medical Properties Trust rents its real estate through triple-net leases, in which the tenant is responsible for property taxes, insurance, and maintenance prices in addition to rent. In addition, the contracts of the REIT often mandate yearly rent hikes. Even though they are modest and reasonable, they mitigate the potential financial impact of inflation over time.

 

Together with a series of recent, complementary purchases, these factors contribute to Medical Properties Trust's rising fundamentals. The REIT increased its quarterly revenue by a substantial 13 percent year-over-year to about $410 million in its most recently reported quarter. The primary profitability statistic for REITs, adjusted funds from operations (AFFO), increased comparably.

 

This improvement in the company's fundamentals provides ample opportunity for a dividend increase. (Which current investor facing inflation wouldn't be pleased with a greater yield?) Medical Properties Trust has increased its cash dividend by 4%, bringing it to $0.29 per share. (Interestingly, 2022 marked REIT's ninth consecutive year of dividend increases.)

 

At the most recent share price close, this proposed dividend would generate a yield of 6.3%. This is high for dividend stocks in general and the generally high-yield dividend universe of real estate investment trusts (as they are obligated to disburse nearly all their net profit in this way). Medical Properties Trust is not just a firm with a built-in inflation hedge, but it is also growing handsomely and rewarding shareholders generously.

3. UMH Properties

UMH Properties (UMH, $19.18) is a U.S.-focused real estate investment trust (REIT) specializing in housing developments. And it is now on Wedbush's list of the best ideas.

 

Wedbush's BIL is a list of its highest-rated firms, selected by Wedbush analysts and approved by the firm's investing committee. If a stock falls more than 25% relative to the S&P 500 or Russell 2000, it gets removed from the list.

 

Wedbush analysts added UMH to their Best Ideas list on January 20, 2022. This list contains the highest-rated corporations by Wedbush. Each business is selected by analysts at Wedbush and evaluated by the firm's investing committee. If a company's stock falls by more than 25% relative to the S&P 500 or Russell 2000, it gets removed from the list.

 

Wedbush analyst Henry Coffey (Outperform, equal to Buy) commented. "What attracted us to UMH is its capacity to deliver annualized FFO growth over the next three to four years, approximately double that of its alternative housing REIT peers and 2.8x that of the typical multifamily REIT."

 

FFO (funds from operations) measures the operating performance of a REIT. UMH Properties' FFO increase bodes well for shareholders, as REITs, in general, are regarded a decent inflation investment (they are better able to pass on costs to consumers than other sectors).

 

Analysts have high expectations for UMH. The seven covering analysts polled by Koyfin have assigned the REIT one Strong Buy rating, five Buy ratings, and one Hold rating, resulting in a consensus Strong Buy rating. Meanwhile, a 12-month price objective of $27.31 represents a 42% increase from current levels.

4. Chuck Saletta

According to a joint statement among seasoned investors, profits are a matter of opinion, while dividends are a matter of truth. In the near term, competent accountants can routinely adjust assumptions, reserves, and forecasts to make an earnings release look better than the business's underlying reality.

 

To pay dividends, a corporation must come up with cold, hard cash to compensate shareholders. Once the money is distributed to the shareholders, it is no longer accessible for use by the firm. In addition, if shareholders become used to a dividend, they tend to blame a company that reduces it when times are rough. Consequently, corporations give careful consideration to the bonuses they provide their stockholders.

 

This is the most exciting aspect of Texas Instruments. Last September, the company increased its quarterly dividend from $1.02 to $1.15, approximately 13%. This increase is sufficient to keep up with even the current strong inflation rate. The distribution still consumes less than half of Texas Instruments' trailing earnings even with this increase. Therefore it is logical to infer that the corporation can continue making this amount. This combination makes Texas Instruments a stock to consider purchasing to combat inflation.

 

This dividend is supported by a semiconductor manufacturing industry that produces over 80,000 unique products and sells them to approximately 100,000 consumers. Although it may be well known for its graphing calculators, the company's longevity is due to the range of its offerings, which spans so many sectors.

 

In addition, the company's shares are offered for somewhat less than 20 times its anticipated earnings, which are anticipated to increase at a respectable 10 percent yearly rate over the next few years. This combination suggests that the company's shares are adequately valued. In addition, it is projected to maintain its history of dividend growth over time, and this is why you should consider adding it to your portfolio immediately.

5. Procter & Gamble Co. (PG)

Procter & Gamble manufactures home goods and owns several well-known brands, including Pampers, Tide, and Gillette. Historically, consumer staples stocks have fared relatively well when inflation is high. Consumers are more likely to reduce their discretionary spending than their purchases of items such as diapers and laundry detergent. Arun Sundaram, an analyst, asserts that Procter has a world-class supply chain and good sales and profit momentum even before the 2020 pandemic. Sundaram predicts that Procter's market share gains will persist despite inflationary challenges. CFRA has a "buy" rating at a $180 price objective on PG stock, which closed on May 19 at $141.70.

6. STAG Industrial

STAG Industrial (STAG, $33.92) is also a REIT concentrating on single-tenant industrial buildings in the United States (think warehouses and distribution centers).

 

Even though industrial REITs have some of the same resilience during periods of rising inflation, this group has been beaten up recently.

 

"Industrial REIT shares have been pummeled over the past week due to worries about supply/demand dynamics and prospective market rent adjustments," Raymond James analyst William A. Crow said in a report dated May 5.

 

These challenges prompted Crow to reduce his 12-month price objective from $47 per share to $42 per share while maintaining his Outperform rating.

 

"We consider STAG's portfolio to be geographical, tenant- and industry-diversified," he added. We believe that fundamentals will stay favorable for some time, and as a result, we anticipate that STAG and its peers will produce strong FFO, [net asset value], and dividend growth over the next few years.

 

Stag Industrial's dividend growth has slowed to a crawl during 2018, totaling just under 3 percent. However, this top investment for inflation has a return greater than 4 percent and pays monthly dividends.

 

Koyfin presently has a Buy rating with a high level of certainty. Two of the twelve analysts tracking STAG rate it as a Strong Buy, six as a Buy, three as a Hold, and one as a Strong Sell.

7. Freeport-McMoRan

FCX ($34.34) is the stock of one of the world's largest copper producers, Freeport-McMoRan (FCX) (some of which also produce gold). The company also has a few oil wells in the Gulf of Mexico and off the coast of California and its South American and Indonesian operations.

 

In 2021, Freeport operated 3.8 billion pounds of copper (19.9 percent more than in 2020), 1.4 billion ounces of gold (61.1 percent more than in 2020), and 85 million pounds of molybdenum (11.8 percent more than in 2020).

 

Copper is the third most often used industrial metal behind iron and aluminum, making it an excellent inflation hedge. As gold is denominated in dollars and inflation erodes the buying power of the U.S. dollar, gold is also often considered a great hedge against inflation.

 

Currently, materials stocks face severe headwinds due to declining economic activity globally, notably in China, where COVID crackdowns are slamming the brakes on the Chinese economy. Chris LaFemina, an analyst at Jefferies, said, "We expect the future rebound in most commodities will be fairly robust due to a lack of supply growth that will only be compounded by this time of demand weakness, macroeconomic uncertainty, and increasing interest rates."

 

LaFemina deems FCX a "Franchise Pick" because of his expectation that copper prices would continue to rise over the following five years.

 

"A time of much slower global growth would be a setback and is becoming increasingly probable shortly," says LaFemina, who rates the company as Buy. "However, the end of the cycle will not occur until the next wave of projects is sanctioned and built. According to us, this will take a decade to play out.

 

Twenty analysts tracking FCX have given the stock a Buy recommendation. Freeport is rated a Strong Buy by six analysts, a Buy by six others, a Hold by six, and a Strong Sell by two. According to the consensus price estimate of $49.47, analysts anticipate a 44 percent price increase over the next 12 months.

8. Coca-Cola Co. (KO)

Like Coca-Cola, the world's largest non-alcoholic beverage corporation, consumer staples tend to fare well as inflation rises. The total return on Coca-Cola shares in 2022 through May 19 is 2.1% when significant indices are down double digits. The conclusion of a pending $12 billion tax dispute might be a bullish trigger for Coca-Cola, according to analyst Garrett Nelson. He forecasts 11 percent sales growth for the business this year. Price upgrades and a resurgence in on-premise sales, according to Nelson, will continue Coca-strong Cola's underlying strength in the following quarters. The KO stock, which ended on May 19 at $60, has a "buy" rating from CFRA and a $72 per share price target.

9. Barrick Gold

Global gold production is expected to rise to 4.8 million ounces in 2021, making Barrick Gold (GOLD, $20.34) the second-largest gold producer. It operates a handful of copper mines in North and South America and Africa, which generated around 415 million pounds of copper last year.

 

"As long as global economic instability and worries of viral outbreaks are part of market discourse, gold will undoubtedly be in demand. David Coleman stated in February, after Barrick's fourth-quarter and full-year 2021 results, that Barrick had a clean balance sheet.

 

The firm also announced an increase of 11 percent to its regular dividend, which will now be 10 cents per share, and expects to pay an extra performance-based dividend of 10 cents per share on June 15. Coleman observed that Barrick's compensation has more than quadrupled after the combination of Barrick and Randgold in January 2019.

 

Copper's impact on Barrick Gold's bottom line is growing, CEO Mark Bristow stated during the company's fourth-quarter 2021 conference call. This additional hedging might be advantageous during times of excessive inflation.

 

Gold shares have had a sharp decline recently but are still up 7 percent year-to-date. The analyst community believes the company has significant upside potential, with a $28.05 price objective representing a 38 percent increase from current levels. Overall, the business has 10 Strong Buy calls, nine Buy calls, and five Hold ones, resulting in a consensus Buy rating with solid conviction.

10. EOG Resources

EOG Resources is the largest independent oil and natural gas firms in the United States, having total net proved reserves of 3.7 billion barrels of oil and oil equivalents.

 

After paying all invoices, interest, taxes, and long-term company investments, EOG had a record-breaking year in 2021, racking up $4,7 billion in net income and $5 billion in free cash flow. The majority of this wealth flowed to shareholders through substantially greater dividends; last year, EOG's quarterly payout quadrupled to 75 cents per share. It also distributed two special prizes.

 

The firm is also thriving in 2022, with a 36 percent increase year-to-date. Despite this, the experts believe EOG has 24 percent more upside potential over the next 12 months due to the sector's continued viability in light of increasing energy inflation (and not including any regular or special payouts). It has received six Strong Buy ratings, fifteen Buy ratings, eight Hold ratings, and one Strong Sell rating. Stewart Glickman of CFRA is in the packed Buy camp.

 

"The business has taken precautions to protect itself from escalating cost inflation and has locked in 90 percent of its drilling rig needs for 2022 at more favorable prices than in 2020 or 2021," he says. We anticipate EOG will continue to prioritize free cash flow and shareholder returns above [capital expenditures], maintaining a prudent approach to capital expenditures.

Conclusion

Although Netflix, Medical Properties Trust, and Texas Instruments operate in diverse industries, they can benefit investors in battling inflation over the long run. The knowledge that some investments provide shareholders a chance to keep up with the rising costs of practically everything is reassuring in today's society.