When the U.S. Bureau of Labor Statistics posted October 2021 inflation climbing to 6.2%, markets fell slightly and quickly shook off the bad news. Stock markets are not a good indicator of the pressure inflation will have on goods that are demand elastic. Investors need to avoid companies that do not have a resilient brand name.
Some blue-chip stocks are immune to high inflation rates. These companies either have no exposure to inflation or have strong branding and customer loyalty, enabling them to pass higher costs.
Companies that have recognizable brands may more easily pass the input costs to customers. Their products are not sensitive to price hikes. As long as companies post stable profit margins, investors should accumulate their underlying shares.
On the BLS report, the consumer price index rose mostly due to the 4.8% monthly increase in energy. In addition, costs rose for required items like used cars and trucks, shelter, and medical care. Months before the inflation report, the U.S. Federal Reserve signaled a change in its policy. It said in the summer that it would reduce its debt purchases. It will also raise interest rates sooner.
Among the seven stocks to buy, some fell irrationally in response to the inflation risks ahead. Even though many of the stocks bounced back, investors should still consider buying them. They are resistant to the ever-rising inflation pressures.
The seven companies are:
- Johnson & Johnson (NYSE:JNJ)
- Lockheed Martin (NYSE:LMT)
- Mastercard (NYSE:MA)
- Pfizer (NYSE:PFE)
- Procter & Gamble (NYSE:PG)
- PayPal Holdings (NASDAQ:PYPL)
- Visa (NYSE:V)
Apart from Lockheed and PayPal stock, all of the companies score a 90 or higher. The firms have a strong return on investment, according to Stock Rover.
Companies that are highly profitable have room to increase their productivity. They raise product prices as a last resort. They also increase operating effectiveness to minimize the price hike.
Inflation-Resistant Stocks to Buy: Johnson & Johnson (JNJ)
Johnson & Johnson recently announced it will split its drug and medical devices business from its consumer products segment. The separation reaffirms the growth potential of consumer products. Despite high inflation rates on raw materials, JNJ has products that consumers cannot forego or substitute.
J&J has consumer products across multiple segments, including skincare, beauty, self-care, and essential health. Its brands include Band-aid, Listerine, Tylenol, and Motrin. Based on a sum-of-the-parts measure, J&J stock is worth more as two split companies. When Pfizer spun off Upjohn with Mylan to create Viatris (NASDAQ:VTRS), the stock eventually rose.
In the third quarter, J&J posted sales growing by 10.7% to $23.3 billion. It increased its full-year 2021 guidance. It expects revenue of up to $93.3 billion. Earnings per share will be in the range of $9.77 to $9.82.
J&J’s Covid-19 vaccine revenue may slow. The product faces growing competition. Since most people in the developed world received full vaccination, demand for Covid-19 vaccines will fall in the year ahead.
Lockheed Martin (LMT)
In the defensive aerospace market, inflation will have almost no impact on customer demand. In the third quarter, Lockheed earned $6.93 a share (non-GAAP). Revenue fell by 2.8% Y/Y to $16.03 billion.
LMT stock fell after the Q3 report. Investors did not expect it would issue a net sales guidance of $67 billion. This is below the prior guidance of $67.3 billion to $68.7 billion. The light outlook may prove temporary. Tensions among big countries are mounting. For example, Tensions with China and Russia will lead to the growing demand for Lockheed’s products. Furthermore, the space business is booming.
Chief Financial Officer John Mollard said that in 2022, the Space segment will face mid-single-digit declines. Still, it has good technologies in the Space Travel market. It will acceleration digital technology solutions in its space products. This will allow Lockheed to offer a more effective national defense at efficient costs.
On Wall Street, most analysts are on the sidelines with a “hold” rating. The average price target is around $382.00, according to data collected by TipRanks.
Inflation-Resistant Stocks to Buy: Mastercard (MA)
In the credit card business, Mastercard is worth considering. The firm posted very strong revenue growth in the third quarter.
In Q3, Mastercard posted a non-GAAP EPS of $2.37. Revenue grew by 30.2% Y/Y to $5 billion. The purchase volume of $1.54 trillion is a reminder that consumers still must spend even when inflation rates rise. Cross-border spending is a positive catalyst for MA stock. In October, month-to-date cross-border volume exceeded 2019’s levels.
To accelerate margins from cross-border travel, Mastercard is making good progress with its acquisition. For example, it acquired CipherTrace in the crypto services area. It plans to acquire Aiia for open banking. CEO Michael Miebach said the broader economy is improving. Despite supply chain constraints and higher energy prices, consumers increased Mastercard payments by 5% compared to last year. It is up 12% compared to 2019.
The post-pandemic will increase travel activities. This will more than offset the inflationary pressures potentially hurting Mastercard usage.
Analysts have an average price target of $438.00 (per tipranks). All 11 ratings from analysts are a “buy.”
Pfizer’s commitment to beat the Covid-19 pandemic sent the stock to 52-week highs. It has a vaccine, through its partnership with BioNTech (NASDAQ:BNTX). More recently, its announcement of an oral antiviral drug adds positively to Pfizer’s prospects ahead.
It’s all led my InvestorPlace colleague Dana Blankenhorn to call just this morning for Albert Bourla to get some sort of “CEO of the Year” honors.
In the third quarter, Pfizer posted a revenue of $24.1 billion. Vaccines accounted for $14.5 billion of its revenue, up from just $1.7 billion last year. It earned $1.42 a share. The firm raised its revenue guidance to a range of $81.0 to $82 billion. It now sees diluted EPS rising by 84% Y/Y to a range of $4.13 to $4.18.
The world is not yet embracing vaccine boosters for all adults. Since Pfizer cannot count on continued revenue growth from it, it has an oral antiviral treatment candidate. In its study, Pfizer treated patients within three days of symptom onset. The pill reduced the risk of hospitalization or death by 89% compared to a placebo.
Assuming the vaccine variants do not get deadlier, Pfizer’s antiviral offers hospitals another treatment option. It will prevent hospitals from getting overwhelmed by severe Covid cases.
Inflation-Resistant Stocks to Buy: Procter & Gamble (PG)
Procter & Gamble said in its third quarter 2021 report posted on Oct. 19 that it expected higher freight and commodity costs. The warning sent the stock lower. But in the last month, PG stock recovered for a good reason. It has a good product mix.
P&G posted net sales increasing by 5% from last year to $20.3 billion. Diluted EPS fell by 1% Y/Y. For the fiscal year 2022, the firm continues to expect sales to grow in the range of two to four percent. EPS for FY 2022 will grow by between six to nine percent.
P&G warned that its current outlook includes headwinds of $2.1 billion due to higher commodity costs. Freight costs will add $200 million to costs.
P&G said that top-line growth is healthy, offsetting the full impact of inflation. CFO Andre Schulten said EPS will improve for the rest of the year. The company will pass price increases to consumers. It has productivity programs ramping up which will offset the impact of inflation.
The average price target on PG stock is $157 (per TipRanks).
PayPal Holdings (PYPL)
PayPal’s stock slumped from $250 when the company considered buying Pinterest (NYSE:PINS). It dipped again after the company posted weak guidance in its Q3 report.
PayPal posted revenue growing by 13% Y/Y to $6.18 billion. It added 13.3 million net new active accounts and now has 416 million. Markets are not rewarding this stock for its strong growth without eBay Marketplace. Starting next year, PayPal will offer Venmo on Amazon (NASDAQ:AMZN).
In Q4, PayPal’s revenue will be in the range of $6.85 billion to $6.95 billion. Analysts expected revenue of at least $7.24 billion. The weaker outlook set off a wave of selling in the last six weeks. Investors who want to own a thriving credit services firm may buy the stock from here.
PayPal wants to become an everyday app for customers. On the merchant side, it wants to provide a comprehensive platform. The company will achieve that goal through its acquisitions in the last five years. It acquired Honey to offer shopping deals to customers. Its PayPal App supports QR codes. And its Happy Returns acquisition will improve customer satisfaction.
Inflation-Resistant Stocks to Buy: Visa (V)
Visa posted a light Q1/2022 net revenue growth forecast. The company assumed cross-border travel will not return to 2019 levels until 2023. It expects growth in the high teens.
CEO Alfred Kelly, Jr. is probably too cautious on the strong prospects of travel. He said, “Visa is even better positioned for the future as cross-border travel recovers.” He is counting on digital payments growth. Furthermore, this will enable people to conduct business internationally and to move money globally.
Visa’s total processed transactions volumes will keep growing. Inflation will have no negative impact. Visa’s board of directors increased the quarterly cash dividend by 17%. This suggests that the recent dip in V stock will not last. Business is accelerating as shopping volumes increase.
Cautious investors may worry about the total operating expenses rising by 15% to $2.24 billion. Still, Visa is investing in digital and strengthening its competitive position against rivals. It also has value-added services that will increase customer satisfaction.
As transaction volumes increase, Visa’s service quality will not worsen. People will appreciate the protection Visa offers. This includes fraud security and dispute resolution.
On the date of publication, Chris Lau 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.
Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns.