Inflation is defined as a general rise in the cost of goods and services which is offset by a symmetrical decline in the purchasing power of a currency. The effect of inflation is that too much money is chasing after too few goods.
In a healthy economy, a little inflation is desired, and even necessary. But when the cost of goods and/or the cost to produce those goods accelerate too quickly, consumers and businesses feel the pinch. And so do investors.
In the face of this inflation, some analysts suggest you keep your cash on the sidelines. But the market doesn't announce when it's going to turn around. And if you're on the sidelines when it does, you'll miss out on the biggest gains.
However, with some simple legwork, you can invest in stocks that will continue to generate revenue and earnings.
This is important because earnings growth is the single biggest predictor of stock price growth. And with many companies expected to be lowering their earnings expectations in 2023, it's important to find companies that expect to have the combination of earnings growth and a dividend yield that can outpace inflation.
That's the focus of this special presentation in which we feature seven inflation-resistant stocks that will allow you to keep ahead of inflation.
Quick Links
- Coca-Cola
- Home Depot
- Albemarle
- Microsoft
- McDonald’s
- Chevron
- Brookfield Infrastructure Partners
#1 - Coca-Cola (NYSE:KO)
The first stock I’d encourage you to consider is The Coca-Cola Company (NYSE: KO). It’s a favorite of Warren Buffett. That may not be the right reason to own KO stock, but it’s not the wrong reason. Buffett looks for stocks to buy and hold forever. And that means companies that deliver consistent revenue and earnings.
In the face of difficult comparisons to 2021, Coke has been delivering record revenue while beating its earnings numbers on a year-over-year basis. Earnings growth is projected to continue at a single-digit clip of about 5% for the next five years. And investing in KO stock also gives you access to a dividend king with a dividend yield of over 2%.
By the way, if you prefer the taste of Pepsico, Inc. (NASDAQ: PEP) for your portfolio, that’s not a bad idea either. Many of the same points for Coke apply to PepsiCo as well. I’m giving Coke the nod here because it has a slightly better valuation, but both are likely to have no problem with earnings growth.
About Coca-Cola
The Coca-Cola Company, a beverage company, manufactures, markets, and sells various nonalcoholic beverages worldwide. The company provides sparkling soft drinks, sparkling flavors; water, sports, coffee, and tea; juice, value-added dairy, and plant-based beverages; and other beverages. It also offers beverage concentrates and syrups, as well as fountain syrups to fountain retailers, such as restaurants and convenience stores.
Read More - Current Price
- $62.55
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 14 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $72.50 (15.9% Upside)
#2 - Home Depot (NYSE:HD)
Home improvement stocks such as The Home Depot, Inc. (NYSE: HD) are frequently seen as cyclical. That's not unreasonable because they're closely tied to the housing sector. But home improvement is a 365-day-a-year market. So whether homeowners do it themselves or use a contractor, these companies generate revenue and earnings.
Home Depot was investing in an omnichannel model before the pandemic. That investment helped the company become an e-commerce winner because it operates in a channel that companies like Walmart Inc. (NYSE: WMT) and Amazon (NASDAQ: AMZN) can't easily copy.
Home Depot has posted revenue and earnings year-over-year gains for the year's first three quarters. Analysts are forecasting continued growth in earnings at an average pace of about 5% in the next five years.
Like Coke and Pepsi, if you're an investor that prefers Lowe's Companies, Inc. (NYSE: LOW), I'm not here to say you're wrong. It's hard to go wrong with a dividend king.
About Home Depot
The Home Depot, Inc operates as a home improvement retailer in the United States and internationally. It sells various building materials, home improvement products, lawn and garden products, and décor products, as well as facilities maintenance, repair, and operations products. The company also offers installation services for flooring, water heaters, bath, garage doors, cabinets, cabinet makeovers, countertops, sheds, furnaces and central air systems, and windows.
Read More - Current Price
- $392.60
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 23 Buy Ratings, 6 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $426.00 (8.5% Upside)
#3 - Albemarle (NYSE:ALB)
Albemarle Corporation (NYSE: ALB) presents investors with considerable share price growth opportunities. Analysts tracked by MarketBeat give the stock a 16% upside from its current level. The company’s current P/E ratio of above 18x makes the stock a little expensive. However, the forward P/E of 9.3x would make ALB stock undervalued.
One of the company’s many business units focuses on developing, manufacturing, and marketing lithium compounds. Lithium will be in high demand in the coming years. One reason for that is its use in the lithium-ion batteries that are the current standard for electric vehicles (EVs).
Albemarle has exceeded one billion in revenue in the first three quarters of the year, including its most recent quarter, in which it eclipsed the $2 billion mark for the first time. Earnings per share (EPS) is projected to grow at an average rate of 46% for the next five years.
And while the dividend has a modest 0.64% yield at this time, Albemarle is a dividend aristocrat, having increased its dividend in each of the last 28 years.
About Albemarle
Albemarle Corporation develops, manufactures, and markets engineered specialty chemicals worldwide. It operates through three segments: Energy Storage, Specialties and Ketjen. The Energy Storage segment offers lithium compounds, including lithium carbonate, lithium hydroxide, and lithium chloride; technical services for the handling and use of reactive lithium products; and lithium-containing by-products recycling services.
Read More - Current Price
- $88.65
- Consensus Rating
- Hold
- Ratings Breakdown
- 6 Buy Ratings, 15 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $115.74 (30.6% Upside)
#4 - Microsoft (NASDAQ:MSFT)
Just because you’re playing defense doesn’t mean you have to stay away from the tech sector. Particularly when you’re investing in Microsoft Corporation (NASDAQ: MSFT). In addition to its legacy software solutions, the company’s reach expands into many of the economy's fastest-growing sectors, including cloud computing, gaming, and cybersecurity.
In the short term, Microsoft stock may be under pressure as the Federal Trade Commission (FTC) seeks to block its acquisition of Activision Blizzard (NASDAQ: ATVI) on anti-trust grounds. However, many investors can look at this as heads they win, tails they still win proposition.
That’s because if the deal goes through the company’s cloud computing, enterprise business units won’t be affected. And if the deal is rejected, the company can put that $69 billion to other uses.
Either way, analysts are projecting average earnings growth that exceeds 16% in the next five years. And that should allow for more than enough stock price growth to offset the dividend that “only” yields 1.05% but has been increasing for the last 18 years.
About Microsoft
Microsoft Corporation develops and supports software, services, devices and solutions worldwide. The Productivity and Business Processes segment offers office, exchange, SharePoint, Microsoft Teams, office 365 Security and Compliance, Microsoft viva, and Microsoft 365 copilot; and office consumer services, such as Microsoft 365 consumer subscriptions, Office licensed on-premises, and other office services.
Read More - Current Price
- $436.60
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 26 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $508.46 (16.5% Upside)
#5 - McDonald’s (NYSE:MCD)
If there is a recession, someone forgot to tell McDonald’s Corporation (NYSE: MCD). The restaurant chain is facing tough comps with 2021 and is holding its own on the top and bottom lines. Even before the pandemic, McDonald’s pivoted to a digital and mobile-facing ordering model.
That appears to be paying off for McDonald’s and investors in MCD stock. Since the pandemic began, the stock price has nearly doubled. And amid a broad market sell-off, McDonald’s stock is up over 4% for the year.
Analysts are projecting the company to average single-digit earnings growth of approximately 7% for the next five years. That kind of earnings growth should be enough to raise the stock price as investors will continue to look for a safe place to invest their capital. And that goes along with owning shares of a dividend aristocrat that has a yield of 2.2% and pays out $6.09 on an annualized basis.
About McDonald's
McDonald's Corporation operates and franchises restaurants under the McDonald's brand in the United States and internationally. It offers food and beverages, including hamburgers and cheeseburgers, various chicken sandwiches, fries, shakes, desserts, sundaes, cookies, pies, soft drinks, coffee, and other beverages; and full or limited breakfast, as well as sells various other products during limited-time promotions.
Read More - Current Price
- $292.68
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 17 Buy Ratings, 11 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $320.65 (9.6% Upside)
#6 - Chevron (NYSE:CVX)
Is it too late to invest in the energy sector? We’ve repeatedly said not even close. And Chevron Corporation (NYSE: CVX) remains a compelling choice for investors looking for inflation-resistant stocks in 2023.
To begin with, there’s reason to believe that crude oil prices will be going up in 2023. In addition to seasonal demand, crude may boost if China’s economy reopens.
But there’s a larger story behind energy stocks that goes beyond the price of crude oil. These companies are at the forefront of the renewable energy movement. One way that Chevron contributes to this is its production of liquefied natural gas (LNG) used in the United States and transported to Europe.
Analysts expect modest single-digit growth in earnings of approximately 4% in the next five years. But investors in CVX stock also get access to a dividend aristocrat that has increased its dividend in 35 consecutive years and currently has a dividend yield of 3.30%. That’s a great reason to believe that owning Chevron stock will be an excellent inflation hedge in 2023.
About Chevron
Chevron Corporation, through its subsidiaries, engages in the integrated energy and chemicals operations in the United States and internationally. The company operates in two segments, Upstream and Downstream. The Upstream segment is involved in the exploration, development, production, and transportation of crude oil and natural gas; processing, liquefaction, transportation, and regasification of liquefied natural gas; transportation of crude oil through pipelines; transportation, storage, and marketing of natural gas; and carbon capture and storage, as well as a gas-to-liquids plant.
Read More - Current Price
- $142.85
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 14 Buy Ratings, 4 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $175.19 (22.6% Upside)
#7 - Brookfield Infrastructure Partners (NYSE:BIP)
Another way to invest in inflation-resistant stocks is through utility stocks. These give investors the benefit of predictable revenue and significant, reliable dividends. That’s the case with Brookfield Infrastructure Partners, L.P. (NYSE: BIP). The company exposes investors to 5G, data centers, and the natural gas sectors.
Despite a stock split in June, BIP stock is down 10% for the year. Part of that is because, despite delivering substantial revenue, the company has a habit of missing analysts’ earnings expectations.
That may be about to change. The company is expected to grow earnings at an average rate of 8% over the next five years. And that’s in addition to the company’s dividend, which has a yield of 4.24%.
About Brookfield Infrastructure Partners
Brookfield Infrastructure Partners L.P. owns and operates utilities, transport, midstream, and data businesses in North and South America, Europe, and the Asia Pacific. The company's Utilities segment operates approximately 2,900 km of electricity transmission lines; 4,200 km of natural gas pipelines; 8.1 million electricity and natural gas connections; and 0.6 million long-term contracted sub-metering services.
Read More - Current Price
- $31.36
- Consensus Rating
- Buy
- Ratings Breakdown
- 5 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $40.20 (28.2% Upside)
When the economy is going well, many companies can get away with lackluster earnings or even being unprofitable. But when inflation is raging, earnings growth is essential to stock price growth. And when inflation is high, it's also good to find dividend stocks. That's because the dividends you receive can be added to the stock price growth to give you a total return that can help you keep up with inflation.
Periods of high inflation are not times to grip it and rip it. Rather, they are times when you want to shorten your swing and keep it in the fairway. These are times when any gain is a good gain.
Finding inflation-resistant stocks means buying stocks of companies that make goods that people want and will continue to pay for, even as the companies are able to pass along some of their rising costs. In the short-term, that will put a floor under the stock. And it's from that base that these stocks can rise to higher levels when the market turns around.
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