Inflation hasn’t been a major factor for investors deciding which stocks to buy over the past few years because the measure has been relatively flat.
However, this year the Federal Reserve is expected to push forward with a series of interest rate hikes in order to try to ease the U.S. economy back onto a more normal path with less intervention from the central bank and its stimulus measures. While inflation readings have been lower than expected recently, the bank looks poised to stay the course anyway, saying that temporary factors have been causing inflation to slow and that it expects to see consumer prices pick up again.
With that in mind, it’s important for investors rearrange their portfolios accordingly and ensure they’re holding some positions in stocks that that will be able to provide returns that rise alongside inflation. It could be time to swap out some bonds and dividend stocks for investments that will insulate your portfolio as inflation ticks up.
Home Depot Inc (NYSE:HD), Johnson & Johnson (NYSE:JNJ) and Wells Fargo & Co (NYSE:WFC) are three such stocks to buy to beat inflation.
Stocks to Buy to Beat Inflation: Johnson & Johnson (JNJ)
Consumer goods stocks are great to own in any economic scenario because demand for their products is unlikely to waver. JNJ is a great pick in this industry because the firm has a widely diversified business that has proven its ability to outperform the wider market year after year.
Not only is Johnson & Johnson one of the few firms with a Moody’s AAA credit rating, but the company’s hefty 2.6% dividend yield is likely to continue growing faster than inflation.
The company has been able to consistently raise its dividend every year for more than 50 years, and the firm’s payout ratio suggests that those hikes will keep coming. When it comes to financially sound, safe bets that will help you keep up with inflation, it doesn’t get much better than JNJ stock.
Stocks to Buy to Beat Inflation: Home Depot (HD)
Another of the best stocks to buy if you think inflation is on the rise is home improvement retail chain Home Depot. The DIY superstore has proven resilient despite the increasingly difficult conditions that retailers are facing.
While many other brick-and-mortar stores have found that their customers are increasingly leaning toward online purchases, HD stock has been able to maintain foot traffic while growing its e-commerce presence rather than swapping one for the other.
Home Depot is likely to see a rise in sales as interest rates rise and the housing market improves. The chain will benefit from consumers who are more willing to upgrade their homes, especially since building materials and DIY gear have proven to be one of the few types of products that consumers still want to buy in person.
Not only is HD’s business likely to benefit from inflation increases, but the chain also offers an inflation-beating dividend yield of 2.3%.
Stocks to Buy to Beat Inflation: Wells Fargo (WFC)
Financials are another sector of stocks to buy that will reap the rewards of higher inflation rates. Rising consumer prices will give the Fed more leeway to increase interest rates — which in turn would benefit banks like Wells Fargo.
In the first quarter of 2017, more than half of Wells Fargo’s revenue was made up of interest income, meaning that the bank will see its bottom line grow substantially as the Fed raises interest rates and loans become more expensive.
Not only that, but the bank will benefit as consumers gain more confidence to make large purchases and take out loans. Unlike many other big banks, WFC makes the majority of its money through consumer banking rather than investment banking, so the firm will be a huge beneficiary in a rising inflation scenario.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.
