No matter how you slice it, the so-called ‘transitory’ inflation that made headline after headline earlier this year, looks more permanent.
In September, headline inflation increased at an annual rate of 4.4%. As reported by outlets, that was the fastest rate of increase since 1991.
The Fed refers to core inflation as its primary measurement of price changes of goods and services. But that too increased substantially — 3.6% in September. There was no change from August, but it was still the fastest rate of change in 30 years. Further, it warrants understanding what core inflation ignores: the costs of food and energy.
The other worrisome fact is that personal income declined 1% in September. And as transitory inflation proves more permanent, that leads to the specter of hyperinflation. Well, hyperinflation is typically defined as a 50% rise per month. So, despite ominous warnings from Jack Dorsey, hyperinflation is hyperbole and will remain so.
That said, it makes sense to adjust your portfolio to accommodate inflation. Here are stocks that should help:
- Altria (NYSE:MO)
- Coca-Cola (NYSE:KO)
- Johnson & Johnson (NYSE:JNJ)
- Lennar Corp. (NYSE:LEN)
- Newmont (NYSE:NEM)
- ProShares Bitcoin Strategy ETF (NYSEARCA:BITO)
- Microsoft (NASDAQ:MSFT)
Hyperinflation Stocks: Altria (MO)
You might not like Altria for the fact that it is a tobacco company that produces cigarettes. If that’s the case, you certainly would find many in agreement with you regarding the evils of big tobacco and smoking in general.
That said, as a stock pick, Altria makes a lot of sense as inflation woes increase. On the one hand, there are reports that cigarette sales are increasing for the first time in 20 years. That may not sound like much, but again, it’s a sea change.
Further, as inflation rises, consumers have greater levels of anxiety. As a result, so-called sin stocks like Altria get a boost.
This means Altria could reasonably expect increasing revenues in these troubling times. That’s a positive for shareholders. The other positive is that Altria pays a massive dividend yielding 8.15%. It does so to balance the decline in profitability as tobacco use declines. Well, a decline in tobacco use is reversing — at least temporarily. That means investors will see rising revenues and benefit from that nearly 90 cent quarterly dividend.
That dividend alone should outstrip inflation. Add it all up and Altria makes sense for all investors but the most steadfast anti-smoking advocates.
Coca-Cola (KO)
Coca-Cola often makes its way onto lists of stocks to benefit in times of inflation. The general thesis is that consumer goods bear the brunt of inflation. Consumers continue to purchase, especially staple goods (Coca-Cola isn’t a staple), and revenues rise as a consequence.
While Coca-Cola is a consumer packaged goods firm, the other benefit is its rock-steady nature as an investment. It probably isn’t hyperbolic to say that it’s a part of American culture. That means it’s pretty much everywhere at all times and that people buy it consistently.
That translates to prices that don’t waver. KO stock carries a beta of 0.64. In other words, when the market drops by $1, KO stock drops by 64 cents. The opposite is true: When things are going well in the market KO stock doesn’t appreciate as quickly. But that’s the allure of Coca-Cola’s defensive nature.
Coca-Cola’s massive scale and dominant position allow it to adjust its business mix in slight ways that keep it steady. Investors can pretty much purchase KO shares and forget them. There’s little chance that things go wrong for long. Analysts expect that the firm will record approximately $38 billion in revenue in 2021. That’ll grow to $40 billion in 2022. The company will adjust slightly on an annual basis, and you can expect those figures to grow. That’s what it does, and that’s why Coca-Cola is steady over the long term.
Hyperinflation Stocks: Johnson & Johnson (JNJ)
There’s nothing surprising or unexpected about JNJ popping up on this list. Any investors who seek information regarding steady, defensive equities are bound to come across Johnson & Johnson sooner or later.
And with good reason. JNJ stock has a beta of 0.72, so it has a track record of weathering storms. Even at the onset of the pandemic Johnson & Johnson shares only dropped to $120 from $150. Their recovery was relatively quick and the steadfastness returned.
JNJ stock bears a dividend yielding 2.6%. History shows that Johnson & Johnson pays four straight quarterly dividends of the same price and then bumps that dividend up 5 or 6 cents. That trend holds true back to 2012. That suggests shareholders could reasonably expect a dividend increase in Q2 of next year. And the firm hasn’t decreased a dividend since 1981.
Investors won’t get rich quick by investing in JNJ shares. But at the same time, they won’t find themselves losing money either. Analyst consensus suggests an average target price of $185.24 for JNJ stock. That’s positive considering current price levels at $163.70. Expect a slow march toward that target in any case. That and steady income from the firm’s dividend.
Lennar Corp. (LEN)
For investors looking to hedge against inflation, one of the smartest ways is to invest in stocks related to assets that are inflating in price. That’s why when food costs rise, analysts always suggest considering CPG stocks like Procter & Gamble (NYSE:PG).
Housing is certainly an asset as well. It’s no secret that housing costs are rising, and that trend doesn’t look to be slowing next year. Therefore, just as it makes sense to buy PG stock when food prices rise it also makes sense to buy housing stocks when housing prices rise.
Lennar is one of the biggest home builders in the U.S., and its geographic footprint coincides with areas of high growth. The company operates and builds homes along the coasts, in the southeast and in Texas, among others.
That gives it plenty of upside, and may logically explain its $120 average target price while it currently trades at around $100, opening on Nov. 2 at $101.29. LEN stock pays a modest dividend of 25 cents on a quarterly basis. That will help to curb any volatility. But it should also be noted that Lennar isn’t as steady as other equities on this list. Its beta of 1.52 doesn’t suggest it can’t move quickly.
The bullish thesis here is that Lennar plays into rising housing costs, but isn’t necessarily an overall “safe” play.
Hyperinflation Stocks: Newmont Corporation (NEM)
When the value of the dollar decreases, one of the oldest notions is to turn to the other store of value: gold. That’s why Newmont is on this list. Newmont is the largest gold mining company in the world.
In 2020 Newmont produced 5.88 million ounces of gold, making it the No. 1 gold mining company by volume. Newmont released earnings on Oct. 28. It reported 1.45 million ounces of gold production in the quarter. That would equate to 5.8 million ounces of annual production on a per capita basis. That would be less than last year’s total. However, the company expects that it will exceed 2020’s 5.88 million ounces of gold production. In the latest earnings report Newmont increased guidance for 2021, expecting to reach 6.0 million ounces.
CEO Tom Palmer wants investors to recognize his firm’s strategic shift, which is underpinned by dividends:
“Supported by our clear strategic focus and proven operating model, we continue to apply our disciplined approach to capital allocation. A year ago, we announced our industry-leading dividend framework, establishing a clear pathway for stable and predictable returns. Over the last four quarters, Newmont has steadily reinvested in our operations while returning more than $2 billion dollars to shareholders through dividends and share buybacks.”
ProShares Bitcoin Strategy ETF (BITO)
The ProShares Bitcoin Strategy ETF (exchange-traded fund) has made a lot of headlines lately. And BITO shares are certainly worthy of the attention they’re receiving.
For one, the Bitcoin (CCC:BTC-USD) linked fund is the fastest ETF to reach $1 billion of assets under management. To some this is hardly surprising. Proponents of cryptocurrency have long awaited the approval of Bitcoin-backed investment products for several years.
Yet, to others, the news is still surprising. The Securities and Exchange Commission has rejected prior applications to get a Bitcoin ETF publicly traded. This ETF is also interesting in that it is backed by Bitcoin futures rather than actual ownership of Bitcoin itself. That means investors in BITO are subject to the fluctuations in price of Bitcoin, and thus risk.
The reason that BITO finds its way onto this list about hyperinflation concerns is that cryptocurrency acts as a counter to fiat currency — in this case, the U.S. dollar. BITO is an ETF, therefore not technically a stock. However, ETFs trade and act similarly to stocks.
Hyperinflation Stocks: Microsoft (MSFT)
Microsoft isn’t known as a defensive stock. And it is likely on very few inflation stock lists. Further, it’s a tech giant and recently made headlines as it overtook Apple (NASDAQ:AAPL) to become the largest company by market capitalization. At present, it’s still in the lead by about $22 billion.
That move was precipitated by Microsoft’s strong quarter combined with supply chain issues at Apple.
In any case, Microsoft isn’t going anywhere despite inflation concerns or much else. MSFT stock has proven rock steady over the past several years. It has hardly missed a beat while running upward from $100 in 2019 to over $300 currently. In fact, MSFT carries a beta of 0.8.
The company is also quietly continuing to increase its dividend. There are signs that it looks to become more mature and given its No. 2 spot in cloud computing there’s steady growth on the horizon as well.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.