There are two narratives that are getting conflated when it comes to inflation. The first is whether or not inflation is occurring. And the second is whether inflation will get out of control.
To the first point, the clear answer is absolutely. There are price increases in everything from commodities to semiconductor chips. And even though lumber prices have gone down it’s a good bet that many consumers will put off their deck projects for another day.
And, of course, inflation numbers tend to strip out gas and groceries – but those are precisely the areas where consumers feel inflation the most. Inflation is real.
But is this just “transitory” as many analysts and the Fed itself claim? Or is it only the beginning of something much worse? The answer to those questions is probably above our pay grade.
As an investor, the inflation narrative only changes where you allocate your investment dollars. And for the most part, you’re probably only looking at a small percentage of your portfolio.
However, the first rule of investing is to not lose money so it’s important to identify companies that can provide a hedge against inflation – transitory or otherwise.
That’s the focus of this special presentation. Right now there are many strong companies that benefit when inflation is on the rise.
Quick Links
- Barrick Gold
- Freeport-McMoRan
- SoFi Technologies
- Visa
- Advanced Micro Devices
- West Fraser Timber
- Beyond Meat
#1 - Barrick Gold (NYSE:GOLD)
Not to be cliché, but it’s impossible to offer advice about stocks that will benefit from inflation without mentioning gold. And a popular way to invest in gold is via mining stocks. This brings me to Barrick Gold (NYSE:GOLD), the second-largest gold miner in the world. Only Newmont Mining (NYSE:NEM) is larger.
At some point, $6 trillion in spending is not going to end well. And that has many investors buying gold as a hedge against inflation. And if the analyst community is to be believed this trend is unlikely to end anytime soon. The consensus price target of 13 analysts gives GOLD stock a price target of $33.25 which is 58% higher than its current price. And the company has 11 “buy” ratings and one “strong buy” among those analysts.
Barrick recently issued $250 million in dividends to shareholders. And that’s only the first tranche of what the company pledges to total $750 million that it will pay out in dividends.
About Barrick Gold
Barrick Gold Corporation is a sector-leading gold and copper producer. Its shares trade on the New York Stock Exchange under the symbol GOLD and on the Toronto Stock Exchange under the symbol ABX.
In January 2019 Barrick merged with Randgold Resources and in July that year it combined its gold mines in Nevada, USA, with those of Newmont Corporation in a joint venture, Nevada Gold Mines, which is majority-owned and operated by Barrick.
Read More - Current Price
- $17.90
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 7 Buy Ratings, 3 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $23.90 (33.5% Upside)
#2 - Freeport-McMoRan (NYSE:FCX)
Sticking in the commodities arena, it’s time to focus on copper which is approaching highs seen when it was selling for an all-time high of $4.50 in 2011. Prices are likely to remain high for the considerable future because copper is needed for electronic vehicles (EVs) as well as many other electronic products.
And Freeport-McMoRan (NYSE:FCX) is the world’s largest publicly traded copper producer. In fact, Sean Sechler recently reminded investors that “Freeport adds roughly $300 million in free cash flow for every $0.10 lb increase in the price of copper.”
Mining stocks are not always great investments. But when they’re hot, they’re boiling. A simple truth of investing is that for mature stocks, stock price growth should follow earnings growth. Freeport-McMoRan is coming off a year that saw it post 2,600% EPS growth. And while it’s “only” projecting growth of just under 480% for 2021, FCX stock is a great buy.
About Freeport-McMoRan
Freeport-McMoRan Inc engages in the mining of mineral properties in North America, South America, and Indonesia. It primarily explores for copper, gold, molybdenum, silver, and other metals. The company's assets include the Grasberg minerals district in Indonesia; Morenci, Bagdad, Safford, Sierrita, and Miami in Arizona; Chino and Tyrone in New Mexico; and Henderson and Climax in Colorado, North America, as well as Cerro Verde in Peru and El Abra in Chile.
Read More - Current Price
- $43.70
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 9 Buy Ratings, 5 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $54.00 (23.6% Upside)
#3 - SoFi Technologies (NASDAQ:SOFI)
The banking sector is traditionally a winner in times of inflation. However, this may not be your typical inflation event. And that makes it an ideal time to think outside the box with the newly public SoFi Technologies (NASDAQ:SOFI).
Digital banking was a necessity during the pandemic. In fact, digital banking penetration increased by 14% in 2020. There’s a saying in sports, “don’t let them see your backup.” When it comes to fintech companies like SoFi once they attract customers, they tend to stick around.
Do not let the fact that SoFi went public via a special purpose acquisition company (SPAC) cloud your thinking. Unlike many SPAC companies that are going public on little more than a kiss and a promise, SoFi already is generating strong revenue. In 2020, it delivered net revenue of $621 million. And it’s projecting that number to reach $1 billion this year.
With a combination of a growing member base and growing revenue, the bank is also expecting to deliver positive EBITDA in 2021. SOFI stock may be choppy until its lockup period ends in July, but investors that do not currently own a position in the company should put it on their watch list.
About SoFi Technologies
SoFi Technologies, Inc provides various financial services in the United States, Latin America, and Canada. It operates through three segments: Lending, Technology Platform, and Financial Services. The company offers lending and financial services and products that allows its members to borrow, save, spend, invest, and protect money.
Read More - Current Price
- $14.67
- Consensus Rating
- Hold
- Ratings Breakdown
- 3 Buy Ratings, 6 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $9.80 (33.2% Downside)
#4 - Visa (NYSE:V)
Sticking with the banking theme for a moment, I heard something on Fox Business that startled me. Namely that Visa (NYSE:V) enjoyed a higher market value than many of the traditional banks including JP Morgan Chase (NYSE:JPM). If there’s a clearer indication of the potential growth of digital banking, I can’t see it.
Visa recently announced its purchase of the open banking platform, Tink, for $2.8 billion. Tink has digital services that connect more than 3,400 banks and financial institutions in Europe. The deal for the Swedish startup will give Visa the opportunity to establish itself in Europe’s fast-growing open banking market.
And although Visa is dipping its toes into what could be the new normal of open banking, this is no desperate pivot. The company has a long history of returning value to its shareholders. Case in point, the company has a 12-year streak of increasing its dividend.
And with V stock up just over 8% for the year, now looks like an ideal time to catch the next leg up.
About Visa
Visa Inc operates as a payment technology company in the United States and internationally. The company operates VisaNet, a transaction processing network that enables authorization, clearing, and settlement of payment transactions. It also offers credit, debit, and prepaid card products; tap to pay, tokenization, and click to pay services; Visa Direct, a solution that facilitates the delivery of funds to eligible cards, deposit accounts, and digital wallets; Visa B2B Connect, a multilateral business-to-business cross-border payments network; Visa Cross-Border Solution, a cross-border consumer payments solution; and Visa DPS that provides a range of value-added services, including fraud mitigation, dispute management, data analytics, campaign management, a suite of digital solutions, and contact center services.
Read More - Current Price
- $307.39
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 25 Buy Ratings, 4 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $321.74 (4.7% Upside)
#5 - Advanced Micro Devices (NASDAQ:AMD)
The global chip shortage is likely to be measured in years, not months. But that doesn’t mean all semiconductor stocks will benefit equally. That being said, there are several companies that come to mind as a chip stock to benefit from inflation. But for now, I like Advanced Micro Devices (NASDAQ:AMD).
One reason I like it is that AMD stock is down about 8% for the year as of this writing. That simply seems unwarranted in the current environment. And for evidence of that you only have to look at the company’s last quarterly earnings report. At that time, AMD posted year-over-year revenue growth of over 90%. And analysts believe that will be a regular occurrence.
However, AMD stock has been a volatile stock for much of 2020. But all this really should mean is that investors should look for opportunistic pullbacks as chances to add to their position on a quality growth stock.
About Advanced Micro Devices
Advanced Micro Devices, Inc operates as a semiconductor company worldwide. It operates through Data Center, Client, Gaming, and Embedded segments. The company offers x86 microprocessors and graphics processing units (GPUs) as an accelerated processing unit, chipsets, data center, and professional GPUs; and embedded processors, and semi-custom system-on-chip (SoC) products, microprocessor and SoC development services and technology, data processing unites, field programmable gate arrays (FPGA), and adaptive SoC products.
Read More - Current Price
- $137.60
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 29 Buy Ratings, 3 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $192.79 (40.1% Upside)
#6 - West Fraser Timber (NYSE:WFG)
In the introduction to this article, I reference the recent spike in lumber prices. The Covid-19 pandemic created a supply shortage that is only now starting to be resolved. And that makes West Fraser Timber (NYSE:WFG) a stock to buy.
It’s true that lumber prices may have reached their peak in early May. At that time, the price per board foot of lumber was over $1,600. But even if it drops to around $600 by the end of the year, it will be double the price it was in May 2020.
At this time, WFG stock does not receive much analyst attention. However the two analysts that cover the stock give it a consensus price target of $98 which would be a 36% from the stock’s current level.
West Fraser will benefit from a situation that is no more complicated than demand surpassing supply for the foreseeable future. Investors should look for any pullbacks as opportunities to buy WFG stock.
About West Fraser Timber
West Fraser Timber Co Ltd., a diversified wood products company, engages in manufacturing, selling, marketing, and distributing lumber, engineered wood products, pulp, newsprint, wood chips, and other residuals and renewable energy. It offers spruce-pine-fir, douglas fir-larch, hem-fir, and southern yellow pine lumber, treated wood products, medium density fiberboard panels and plywood, oriented strand board, and laminated veneer lumber wood products, as well as particleboards.
Read More - Current Price
- $93.44
- Consensus Rating
- Buy
- Ratings Breakdown
- 5 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $111.60 (19.4% Upside)
#7 - Beyond Meat (NASDAQ:BYND)
The last stock on this list of inflation-busting stocks is Beyond Meat (NASDAQ:BYND). BYND stock has been tough for investors to love since it went public in 2019. And I’m aware of recent headlines in which Dunkin Brands is pulling the Beyond Meat breakfast sandwich from all but select locations. This wouldn’t be the first time that the plant-based product has had disappointing sales in pilot projects.
But have you looked at meat prices? So have I. And that means the door is open for customers who are so inclined to give the product a chance. In the company’s most recent earnings report, they cited several positive trends supporting their position as the number one brand for refrigerated plant-based meat. For the trailing 12 months ending March 28, 2021 the company saw its U.S. household penetration increase by 10 basis points to 5.4% with repeat purchases climbing to 56.9% from 55.3% in the prior quarter. And net revenues in the U.S. were up 28% year-over-year.
It appears that investors may have the same idea. As of this writing, the BYND stock chart is looking favorable with pricing consolidating around its 200-day moving average with reduced volatility.
About Beyond Meat
Beyond Meat, Inc, a plant-based meat company, develops, manufactures, markets, and sells plant-based meat products in the United States and internationally. The company sells a range of plant-based meat products across the platforms of beef, pork, and poultry. It sells its products through grocery, mass merchandiser, club stores, and natural retailer channels, as well as various food-away-from-home channels, including restaurants, foodservice outlets, and schools.
Read More - Current Price
- $5.15
- Consensus Rating
- Reduce
- Ratings Breakdown
- 0 Buy Ratings, 3 Hold Ratings, 3 Sell Ratings.
- Consensus Price Target
- $5.50 (6.8% Upside)
You may be thinking, is inflation really a big deal? Or is this just an issue that will resolve itself? There’s certainly an argument for either option.
On a macroeconomic level, perhaps inflation is a long-term nothing burger. I can support the broad concept that many of the price hikes that we’re seeing are transitory in nature. After all, it’s hard to simulate the supply-demand imbalance caused by the Covid-19 pandemic.
But I urge you to consider one key point. To co-opt another idiom, all inflation is local. Or put another way inflation means one thing on Wall Street and something quite different on Main Street. Plus even if the effects of inflation are transitory, many analysts project higher prices to last at least through 2021 and perhaps longer. To many consumers, inflation will make a dent in budgets for some time to come.
However, as I stated in the introduction, as an investor your goal is to profit from either scenario. That’s why it’s important to position yourself in the stocks and sectors that will benefit from inflation.
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