Inflation concerns are one of the most relevant issues related to the economy currently. As the U.S. shifts into the post-pandemic era, it seems that inflation is an unavoidable buzzword in almost all economic discussions. There are several indicators pointing to the idea that inflation is indeed coming to be.
The OECD reported that in April 2021 “prices in its 36 members, which are mostly rich countries, were 3.3% higher than in April 2020.” The jump was the biggest since October 2008.
In the G20 nations, which represent 80% of global economic activity, the April inflation rate hit 3.8%, up from 3.1% in March. It is impossible to say whether the increases are a result of base effects as sectors switch from a suspended state to a restart. Furthermore, the U.S. consumer price index rose 4.2% in April. According to former New York Fed President William Dudley, the “spike in U.S. inflation is likely transitory for now — but it could become more persistent in the coming years as more people return to work.”
Regardless of inflation’s cause or duration, consumers and investors are looking at methods by which to mitigate its effects. There are several strategies stock investors utilize to hedge the effects of rising inflation. Investments in commodities, financial stocks, real estate investment trusts (REITs) and capital-light stocks tend to perform better in such times.
Bearing that in mind, here are seven stocks to buy as prices rise:
- Barrick Gold Corp. (NYSE:GOLD)
- Newmont Mining (NYSE:NEM)
- West Fraser Timber (NYSE:WFG)
- Facebook (NASDAQ:FB)
- Alibaba (NYSE:BABA)
- Pilgrim’s Pride (NASDAQ:PPC)
- Hess Corp. (NYSE:HES)
Inflation Stocks: Barrick Gold Corp. (GOLD)
When the value of printed currency rises, investors often flock to the alternative store of value that is gold. In my opinion, the first two stocks on this list are strong choices as a play on that thought. Barrick Gold is the second-largest gold miner globally, only after Newmont Mining.
The idea here is that investors are going to seek well-known, well-established names in gold as they pivot into the sector as a hedge against inflation. That should put upward price pressure on GOLD stock in the coming weeks, months and, perhaps, years.
I’ve written about Barrick Gold a few times, and I never fail to mention that it is a safe, strong choice in gold. I also never fail to mention that of the 13 gold mines in the world that have both projected annual production of 500,000 ounces of gold and below average operational costs, Barrick owns or has ownership interest in six of them.
Both revenue and net earnings are up at Barrick in Q1 2021 on a year-over-year basis. The company also recently announced that it will be returning $750 million to shareholders as dividends, with the first $250 million thereof to be paid on June 15.
Newmont Mining (NEM)
Newmont Mining is an attractive hedge against inflation for many of the same reasons that Barrick Gold is. It is a large gold producer with a stable track record. In fact, in 2020 Newmont Mining was the largest gold mining company by production with 5.8 million ounces. My guess is that investors aren’t looking for exotic investments at this time. Rather, I suspect that most investors want stable companies with catalysts that could propel them upward swiftly. NEM stock fits that bill.
Beyond those reasons, NEM stock has also appreciated in value by 18% this year. Further, average stock price targets are around $75, meaning there is room to rise even before recent inflation concerns are factored in.
Recent comments by CEO Tom Palmer should also excite investors. He said, “In the first quarter we delivered a solid financial performance with $1.5 billion in adjusted EBITDA and $442 million in free cash flow, putting Newmont on track to achieve our full-year guidance with improving production expected in the second half of the year.”
The important part here is the increased production expected in the second half of the year. Increased production coupled with increasing prices should spell rapidly rising revenues.
West Fraser Timber (WFG)
Lumber prices have been one of the most inflationary commodities thus far in 2021. One year ago, the price per board foot of lumber was roughly $360. Today, that price stands at $1,220. Although the price has retreated quickly from its May 7 peak of $1,670, there is reason to believe the decline will be slow.
Capital Economics commodities analyst Samuel Burman expects prices could fall to $600 by year-end 2021. That should mean that West Fraser Timber will have strong quarters even in the case that prices normalize by then.
West Fraser Timber had a very strong Q1. Sales rose from $890 million in Q1 2020 to $2.34 billion in Q1 2021. And EBITDA (earnings before interest, taxes, depreciation and amortization) skyrocketed from $68 million to over $1 billion.
Remember, prices were rising during that period, but nowhere near their highs. And those prices remain above Q1 levels, meaning revenues could outperform again. WFT stock could jump up quickly in coming quarters.
Facebook seems to constantly be in the limelight based on some accusation or another. Most recently, it has found itself in the spotlight for content-moderation rules that apply to politicians and renewed antitrust probes.
But in the context of stocks to buy when prices and inflation are on the rise, Facebook deserves mention. This primarily relates to it being a capital- and asset-light firm. In times when input prices are volatile and rise in unpredictable ways, firms that have lower input costs become more attractive.
Further, in times of disrupted supply chains, greater investment in operations rather than hard assets and their distribution is a safe bet. So despite the recent tech woes and selloffs, Facebook’s asset-light strategy should garner investor interest as inflation worries ramp up.
And if that simple catalyst isn’t enough, investors should simply look to Facebook’s recent earnings report. The company’s revenues rose 48% in Q1 year-over-year, while net income nearly doubled, rising 94%.
For many of the same reasons that Facebook looks attractive currently, so too does Alibaba. Primarily, I’m referring to the asset-light model that pervades the tech industry. That is the main catalyst for Alibaba as it relates to the inflation narrative. It’s also clear that there are multiple forces holding BABA stock down at the moment.
The tech selloff is one of them, and U.S. delisting fears are a constant buzz in the background. China’s stringent crackdown on tech and fintech firms is another. In fact, Alibaba was the poster child for this crackdown, and Jack Ma’s comments catalyzed the movement as much as anyone else’s.
But this really amounts to a buy-the-dip opportunity in a massive ecommerce company well-entrenched in a superpower economy in China. When the analysts covering the equity rate it 49 buys, one hold and zero sells, it doesn’t take much coaxing to help investors understand that BABA shares will likely rebound.
Alibaba’s earnings report shows how strong the company is despite the antitrust fine levied against it at home.
Pilgrim’s Pride (PPC)
The spot price for chicken is way up. It currently sits 17.93% higher than in the previous month, and up 83% from a year ago. That’s part of the reason investors should consider investing in Pilgrim’s Pride. The Colorado company produces, processes and distributes chicken in the U.S., U.K., Mexico and Europe.
Sales were already up 6.5% in the first quarter of 2021, and adjusted EBITDA increased 53.4%. Those increases occurred as prices rose through the beginning of 2021, ending at $1.147 on March 31. By April 30, those prices had risen to $1.353. Therefore, investors could reasonably expect that both revenues and EBITDA should rise in the coming quarter and perhaps beyond.
Investors could look to other larger chicken meat stocks, including Tyson Foods (NYSE:TSN) to mitigate the rising prices at the grocery store, but Pilgrim’s Pride can perhaps rise more quickly.
There’s good reason to be interested in oil stocks currently. A recent Barron’s article spells it out nicely: “Oil prices hit their highest levels in 2½ years on Tuesday as OPEC signaled a slow return to normal production and demand appeared to be surging higher. A third factor may also keep oil prices aloft — corporate boards putting pressure on big oil companies to adopt climate-friendlier policies.”
Hess stands to benefit from both of those trends. It is clear why the company should benefit from rising oil prices. Yet, oil companies like Hess less often rank highly for their ESG efforts. Hess however, was recently ranked “the No. 1 energy company on the 100 Best Corporate Citizens list, ranking No. 35 on the 2021 list for outstanding environmental, social and governance (ESG) transparency and performance.”
Those two factors, along with inflation, should spell strong tailwinds for Hess.
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.”