Grab the liquor from Dad’s cabinet, because you’re going to need it. Everything you’ve been told about inflation is wrong.
Inflation is not knocking around at an annual rate of 3% or so, as you’ve been led to believe. In fact, inflation is closer to 10%, according to the Chapwood Index. Chapwood takes a huge list of everyday products and surveys their prices across 50 different cities.
Whoa, are you all right? You’ve looked a little woozy ever since I mentioned that thing about inflation being 10%. Stay with me, because this is important.
All that advice you are being fed about investing in safe dividend blue-chips and bonds is good for some investors, but not for all. Investors need a real hedge against inflation. The only real way to do that, short of investing in mREITs and BDCs, which presently pay 10% dividends, is to get some growth stocks.
But you want growth stocks that are as “safe” as growth stocks can be. Here are three of the best.
Growth Stocks for Inflation — Apple, Inc. (NASDAQ:AAPL)
Apple Inc. (NASDAQ:AAPL) has had its share of hiccups, but they’re little more than temporary stumbles. The company continues to blast away as one of the premier growth stocks.
AAPL understands its consumer and it understands the market. It doesn’t play soft ball, either. You won’t find Apple products having big flash sales. Either you love what they have and are willing to pay the premium or they don’t want your business.
Tim Cook has done a great job of putting any skepticism to rest. He has firm control of AAPL stock and is steering it brilliantly. Earnings reported a couple of weeks ago were stellar. Apple reported record revenues from the iphone, iMac and the App Store. I mean, the company recorded $75 billion in revenue! That’s bigger than the market cap of Starbucks Corporation (NASDAQ:SBUX).
Normally, I’d see the 6% decline in share count and accuse the company of financially engineering its EPS higher. But even after backing out that adjustment, EPS still grew 40%!
Apple has $30 per share in cash and short-term investments. AAPL stock is both a growth and a value play, and it should easily outperform inflation.
Growth Stocks for Inflation — The Priceline Group Inc (NASDAQ:PCLN)
The Priceline Group Inc (NASDAQ:PCLN) isn’t the cheapest of growth stocks as it once was — the dumb $2.6 billion acquisition of Open Table changed things — but that doesn’t really matter too much.
PCLN is still growing, and the online travel site wars have come down to Priceline and Expedia Inc (NASDAQ:EXPE), which acquired the last two meaningful names in the business recently.
Just as Apple has this huge moat around it because of its unique products and brand loyalty, PCLN stock has a lock on a business model that isn’t going away. Priceline makes so much money in free cash flow that it can acquire any upstart that might threaten it, not to mention putting that 10% inflation rate to shame.
PCLN stock continues to grow at 20% annually, and trades at a value price based on that, even before backing out its excess cash. Travel is absolutely booming right now, and will continue to do so for awhile. Yes, at some point, travel will falter. So just set a trailing stop loss of 8% to 10% and you’ll be fine.
Growth Stocks for Inflation — Buffalo Wild Wings Inc. (NASDAQ:BWLD)
The riskiest play for growth stocks, although it’s also still a value play, is Buffalo Wild Wings Inc. (NASDAQ:BWLD). I normally shy away from restaurants because growth can flag suddenly and crater a stock. However, I think that BWLD may be more than just a chicken wing restaurant.
I think BWLD could be the next version of Starbucks (NASDAQ:SBUX), which revolutionized social activity by becoming a place to meet outside of home and work. Buffalo Wild Wings may have just become the default sports bar: The food is good and reasonably priced, the locations are all huge so they can pack people in for big events, and there a ton of TVs.
Earnings are growing at 20%, BWLD stock has no long term debt, and while FCF isn’t as great as I’d like, the company is making good money on the bottom line and beating inflation.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance. He has 20 years’ experience in the stock market, and has written more than 1,200 articles on investing. He is the Manager of the forthcoming Liberty Portfolio. As of this writing, Lawrence Meyers was long AAPL and SBUX. He can be reached at TheLibertyPortfolio@gmail.com.
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