The stock market jumped when the US Department of Labor reported that the consumer price index rose 8.5% year over year in the month of July, from a 9.1% advance in June. Inflation may finally peak, but the Federal Reserve is likely to continue raising interest rates until inflation returns to near its long-term target of 2%. Bank of America recently compiled a pro-inflation stock screen to identify stocks that have historically displayed a strong positive correlation with inflation. While other companies are battling rising costs, inflation can actually help these stocks outperform. Here are seven inflationary investments for investors looking to protect their portfolio.
7 stocks that are good investments during inflation:
- Mosaic Co. (MOS)
- APA Corp. (APA)
- Applied Materials Inc. (AMAT)
- Halliburton Co. (HAL)
- Advanced Micro Devices Inc. (AMD)
- SVB Financial Group (SIVB)
- Tapestry Inc. (TPR)
Mosaic produces concentrated phosphate and potash crop nutrients for the agricultural industry. Analyst Steve Byrne says Mosaic’s second-quarter earnings numbers were in line with his expectations. Fertilizer prices hit record highs in 2022 after Russia’s invasion of Ukraine, but Byron pulled phosphate and potash prices back into the second half of 2022. Mosaic Management recently said it plans to return 100% of its free cash flow to shareholders. Byrne expects $2 billion in buybacks and says a special dividend is also likely. Bank of America has a “buy” rating and $88 price target for MOS stock, which closed at $60.69 on Aug.
Formerly known as Apache, APA is a major American oil and gas exploration and production company. Analyst Doug Leggett says APA returned 43% of its free cash flow to shareholders in the first half of 2022 and is positioned to accelerate its share buybacks in the second half of the year. Leggett says APA’s second quarter was “messy” and its guidance was “mild,” but the value of APA’s cash flow makes the stock one of the top most U.S. exploration and production stocks on the market. Bank of America has a “Buy” rating and $62 price target for the APA stock, which closed August 24 at $40.31.
Applied Materials Inc.
Applied Materials is the world’s leading manufacturer of wafer fabrication equipment for the semiconductor industry. Analyst Vivek Arya says wafer fab equipment spending will decline by 5% in 2023. However, Applied Materials’ fiscal fourth-quarter guidance exceeded expectations and growth for its semi systems segment is accelerating. In addition, Arya says the company’s gross margin has expanded since its low in July and the company’s commitment to aggressive share buybacks should help support the stock. Applied Materials’ Logic and Foundry growth and 20% free cash flow margins are also impressive. Bank of America has a “Buy” rating and $125 price target for AMAT stock, which closed Aug. 24 at $101.48.
Halliburton is a major US oil field services company. Analyst Chase Mulvehill says strong operating leverage, pricing power and disciplined spending are all tail winds for Halliburton. Halliburton’s international revenue was up 20% in the first half of the year, and Mulvehill says the company will continue to report strong growth numbers in 2023. Mulvehill projects 2022 free cash flow, or FCF, $1.5 billion and 2023 FCF $2.7 billion. He says the company can increase its dividend to pre-pandemic levels in the medium term. Bank of America has a “Buy” rating and a $35 price target for HAL stock, which closed August 24 at $31.66.
Advanced Micro Devices Inc.
The semiconductor company Advanced Micro Devices produces personal computer central processing units and graphics processing units, as well as server chips for data centers. AMD management is confident about the company’s data center growth opportunities and the benefits of integrating Xilinx into its operations. Arya is also bullish on AMD’s conservative approach to the personal computing market and its pricing discipline. AMD traded at just 21.6 times Arya’s 2023 earnings per share estimates, an attractive valuation for a stock that posted 70.1% revenue growth in the most recent quarter. Bank of America has a “Buy” rating and $120 price target for AMD stock, which closed Aug. 24 at $92.73.
SVB Financial Group
SVB Financial is the parent of Silicon Valley Bank, a commercial bank specializing in technology, life sciences, wineries and private equity and venture capital firms. Through August 24, shares of SVB are down 37% in 2022 on concerns that declining tech sector valuations could impact SVB’s early-stage venture capital and private equity clients. Analyst Ibrahim Poonawalla says a sharp fall in the tech company’s valuation, coupled with SVB’s second quarter earnings release and cut guidance, have scared investors. However, he maintains that SVB’s core business model is one of the best in the banking industry. Bank of America has a “Buy” rating and $525 price target for SIVB stock, which closed August 24 at $429.50.
Tapestry is the parent company of luxury brands Coach, Kate Spade New York and Stuart Weitzman. The company produces accessories, handbags, shoes, fragrances and other products. Rising prices likely won’t deter Tapestry’s high-end customer base. Analyst Lorraine Hutchinson says Kate Spade, Koch and Stuart Weitzman generated impressive average unit retail growth in the fiscal fourth quarter, and Tapestry’s overall revenue growth should strengthen in the second half of the year as the China market recovers. China’s sales declined 32 percent in the fourth quarter. Bank of America has a “Buy” rating and $50 price target for TPR stock, which closed August 24 at $36.03.
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