It’s no secret that we’re in a period of intense inflation — you’ve probably been feeling it at the grocery store, gas pump, and everywhere in between. Even Costco has announced plans to increase its membership fees this summer to keep up!
The good news is that there are some stocks that typically perform strongly during inflation that can help you offset some of your skyrocketing expenses. Here is a list of 7 top stocks that benefit from inflation.
Energy Stocks that Benefit from Inflation
One energy stock you can use as a hedge against inflation is:
As the Russia-Ukraine conflict intensifies and gas and energy prices climb, CVX and its shareholders are repeating the benefits as higher oil and gas prices boost profit margins at CVX and other energy companies.
The momentum comes on the heels of a strong Q4 2021 earnings report. Chevron CEO Mike Wirth described 2021 as “one of our most successful years ever.”
Strong earnings and soaring gas prices aren’t the only reasons Chevron’s stock is outperforming estimates. Earlier this month, Chevron announced plans to acquire Renewable Energy Group (REGI) for $3.15 billion — the company uses waste oils to create usable products, including biodiesel.
Also in March, Chevron announced plans to deliver higher returns and lower carbon, paving the way for even eco-conscious investors to feel a bit more comfortable investing in the gas giant.
Bank Stocks that Benefit from Inflation
Known for its investment banking prowess, Morgan Stanley has recently undergone a $20 billion transformation to make the company more accessible and to balance its revenue streams, including major acquisitions of trading platform E*TRADE and wealth management firm Eaton Vance.
Morgan Stanley’s updated and diversified revenue model makes its stock a good hedge against inflation. In fact, the company CEO expects Morgan Stanley to see an additional $500 million in net interest income — dependent on the timing of fed interest rate hikes and loan growth.
MS’s new acquisition of E*TRADE also means it may benefit from volatile market conditions as traders on E*TRADE spend more time on the platform.
Even Morgan Stanley’s bread and butter — its wealth management services — could see a boost in demand as people look for guidance in navigating the turbulent market and to combat rising inflation and interest rates.
Financial services company Wells Fargo offers a diverse set of banking, investment, mortgage, and consumer and commercial financial products and services. The company operates in four primary segments:
- Commercial banking
- Consumer lending
- Corporate and investment banking
- Wealth and investment management
Wells Fargo’s fourth-quarter earnings for 2021 exceeded analyst expectations; revenue was reported at $20.8 billion, topping the estimate of $18.8 billion. The company’s net income saw an 86% increase YOY, rising to $5.75 billion.
Tech Stocks that Benefit from Inflation
Tech stocks have had a rough start to 2022. But, if you’re looking for tech stocks that will fare the best during this period of high inflation, consider investing in:
There are three primary reasons Amazon can insulate itself from the effects of inflation:
- Higher prices at brick-and-mortar stores drive consumers to search Amazon’s marketplaces for lower-cost alternatives.
- Amazon Prime’s ecosystem locks consumers in by providing exclusive discounts and free shipping, among a bevy of other members-only perks.
- The e-commerce giant can afford to sell its products for lower prices because it has other outlets to generate revenue, including Amazon Web Services (AWS).
Amazon also recently announced a stock split, allowing investors to stretch their dollars further. If shareholders approve the split, it will take place in early summer, effectively splitting the stock 20-for-1. This is pretty significant news as the last time the company split its stock was in 1999. After the split, AMZ climbed by 75%.
Salesforce operates the planet’s largest cloud-based CRM platform that allows users to track and analyze all of their customer relationships. Salesforce also cross-sells supplemental services such as:
- Marketing
- E-commerce
- Analytics
- App development services
These cross-sale features further lock in Salesforce clients into the CRM ecosystem.
In addition to its customer relationship tracking features, Salesforce also has features that help companies streamline their operations while reducing their dependence on human employees for mundane tasks and empower decision-makers to make data-driven choices.
Salesforce recently paid $27.7 billion to acquire the communication platform Slack. Despite this massive investment, Salesforce plans to nearly double its annual revenue from $26.4 billion in 2022 to more than $50 billion by 2026.
Microsoft provides software services, solutions, and devices across the globe. The software giant sells its products via certified distributors, on digital marketplaces, and through resellers. Its market capitalization is valued at more than $2 trillion. No matter how high inflation gets, people will continue to need Microsoft services and products, making it an excellent investment to hedge against inflation.
In January, Microsoft announced plans to acquire Activision Blizzard (ATVI), which is a game developer and interactive entertainment company. Microsoft purchased ATVI for $68.7 billion cash, and the analysts expect the acquisition will accelerate the growth of Microsoft’s gaming division even further, diversifying it across different mediums as well as helping the company start building in the Metaverse.
Microsoft’s fourth-quarter 2021 earnings were strong. The company reported:
- A 20% increase in revenue, propelling it to $51.7 billion.
- A 24% increase in operating income at $22.2 billion.
- A 21% increase in net income, at $18.8 billion.
- A 22% increase in diluted earnings per share to $2.48.
This growth momentum even caused Microsoft to overtake Apple (AAPL) as the largest company by market capitalization. It’s now in the lead by $22 billion — quite a significant leap.
Big Pharma Stocks that Benefit from Inflation
Finally, here’s the Big Pharma stock that’s known as a Dividend King that you should consider adding to your portfolio to safeguard it against inflation.
Johnson & Johnson reported $93.78 billion in sales in 2021, a nearly 14% growth rate compared to the year before, thanks to growing revenue in all three of its business segments:
- Consumer health
- Medical devices
- Pharmaceutical segments
JNJ saw most of its growth in the pharmaceutical segment, growing to $52.08 billion in 2021. Of course, the largest growth driver was the Johnson & Johnson Covid-19 vaccine, responsible for bringing in $2.39 billion in 2021.
The company’s second-largest growth driver was its blood cancer drug Darzalex, posting $6.02 billion in revenue, an impressive 43.8% growth from 2020.
The third growth driver was Stelara, the company’s immunology drug, experiencing an 18.3% surge YOY to $9.13 billion.
Those top three growth drivers are among J&J’s portfolio of 13 blockbuster drug franchises.
The growth is not expected to slow down anytime soon. In fact, analysts expect Johnson & Johnson to deliver 6+% annual earnings growth from now until 2027.
Johnson & Johnson is in a great position to continue its steady stream of earnings growth, allowing the company to build on its 59 consecutive years of dividend increases — that’s the longest streak in healthcare.
Another distinguisher between Johnson & Johnson and other healthcare companies is its AAA credit rating, meaning the growth and dividends are likely to continue for a long time thanks to J&J’s rock-solid business model, making it one of the best businesses on the planet.
Stocks That Benefit From Inflation: Bottom Line
Inflation can seem overwhelming and downright frightening. But, the good news is there are some investments you can make today that will protect your portfolio and your budget from rising costs. We hope this list has helped inspire you to make some smart investments, and don’t hesitate to reach out with any other questions! Financhill is here for you.
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