SPECIAL REPORT The Top 7 Stocks for 2024

7 Stagflation Stocks to Buy to Combat Slow Growth and Inflation


stagflation stocks - 7 Stagflation Stocks to Buy to Combat Slow Growth and Inflation

Source: ImageFlow/Shutterstock.com

Following the devastation of the coronavirus pandemic, billions across the globe were looking forward to normalization. Then, Russia attacked Ukraine and all perdition broke loose. Rather than recovery, analysts are now worried about the prospect of stagflation, broadly defined as slowing economic growth and high inflation. This circumstance — a worst of both worlds — has investors thinking about stagflation stocks to buy.

But how real is this economic threat? The last time the U.S. encountered stagflation was in the 1970s, a period which was also characterized by soaring energy prices. That’s quite a while ago. Moreover, for conditions to qualify based on the technical definition, an economy must also suffer from high unemployment. However, the unemployment rate has dropped back down below 4%. So, is talk about stagflation stocks to buy an overreaction?

Honestly, anything is possible, especially in the current paradigm of pandemics and open warfare. However, the disruption of the modern global order is now clearly out the window. Signs point to tensions between the west and Russia only worsening. Therefore, investors should at least consider the idea of stagflation stocks to buy.

Another factor that emboldens this unfortunate narrative is the inflation problem. Since data was kept by the Federal Reserve Bank of St. Louis, the expansion of real M2 money stock on a sequential month-to-month basis increased at the highest rate on April 2020 (7.3%). The previous record? That would be 3%, set on December 2008. And before that was 2.6% set on January 1983, which augurs cynically well for stagflation stocks to buy.

Note that an increase in money supply to 3% from 2.6% isn’t necessarily shocking. But an increase to above 7% from 3%? That’s massive, suggesting that the Fed must raise interest rates to the moon to combat the inflation problem, which would more than likely lead to a recession. It’s terrible, yes, but these circumstances leave hardly any good options on the table, necessitating consideration of these stagflation stocks to buy.

  • Sempra (NYSE:SRE)
  • American States Water (NYSE:AWR)
  • Nutrien (NYSE:NTR)
  • Costco (NASDAQ:COST)
  • Johnson & Johnson (NYSE:JNJ)
  • Wheaton Precious Metals (NYSE:WPM)
  • Ovintiv (NYSE:OVV)

The other side of the equation is if circumstances normalize quicker than anticipated, stagflation stocks probably wouldn’t provide the growth necessary to excite investors. However, the prospect of de-escalation seems unlikely; if anything, the powers that be suggest an escalation is likelier. That’s why investors should be prepared but as always, please conduct your due diligence before proceeding.

Sempra (SRE)

two light bulbs with grey sky in the background

Source: Shutterstock

Frankly, utility firms feature a love-hate relationship that’s difficult to ignore. On one hand, utilities buttress the innovations that define modern societies. With power, none of our digitalized systems would function. But on the other hand, consumers have little to no choice about which company serves their needs. The lack of competition is basically un-American.

Still, from an investor’s perspective, it’s mostly a love-love relationship. Under a context where stagflation stocks to buy dominate people’s interests, SRE could rise above the muck.

On a year-to-date basis, shares have already demonstrated their vitality, moving up nearly 17% through the close of the March 11 session. Better yet, SRE could move higher still. First, it has the key element of stagflation stocks, namely indispensability. Second, Sempra serves regions in the lucrative southern California market.

American States Water (AWR)

A photo of water being poured into a glass that's sitting on a table.

Source: HQuality/ShutterStock.com

Unlike Sempra above, American States Water — a water utility firm serving over one million people in nine states — is not performing particularly well. Shedding more than 18% on a YTD basis, it’s down more than the S&P 500 index over the same frame, which has lost a bit over 12%.

Still, if you’re seeking stagflation stocks to buy, American States Water is an intriguing idea for those who can handle some risk. For starters, the company’s business is absolutely critical. In addition to serving the residential and commercial needs for its market area, it also provides “water distribution, wastewater collection, and treatment facilities located on eleven military bases throughout the country.”

Another factor to consider is climate change and its impact on water levels. With prolonged droughts severely disrupting the southwestern region of the U.S., demand for water for all purposes will surely rise. But since there’s no water alternative, AWR clients must accept the cost spike no matter what.

Yes, it’s brutally cynical but when you’re talking about stagflation stocks to buy, it’s truly par for the course.

Nutrien (NTR)

A photo of Nutrien's (NTR) website, with a magnifying glass over the logo.

Source: Pavel Kapysh/ShutterStock.com

A Canadian fertilizer company based in Saskatoon, Saskatchewan, Nutrien owns the distinction of being the largest producer of potash and the third-largest producer of nitrogen fertilizer in the world. Indeed, one of the non-violent consequences of the Russian invasion of Ukraine is that it forced everybody to recognize how delicate international stability is under a globalized economic paradigm.

Indeed, investors have been one of the first to recognize such vulnerabilities, driving up NTR shares to a 28% YTD performance, one of the best among stagflation stocks to buy. Long known as the breadbasket of Europe, Ukraine served a critical need for the international community as a source of vital food products. The country is one of the biggest wheat exporters in the world.

Thus, the idea that Ukraine is not vital to global security is not accurate. While we Americans may not be particularly affected by Ukraine’s food supply chain disruption, several countries are. Further, the gap that this leaves in international food security will put more eyeballs on firms like Nutrien.

Given that the war seems only to be worsening, NTR is cynically one of the best stagflation stocks to buy.

Costco (COST)

Short-Term Profit Taking May Take a Bite out of the Costco Stock Price

Source: Helen89 / Shutterstock.com

A boring company to invest in for arguably most circumstances, under the sudden demand boost for stagflation stocks to buy, Costco just got a whole lot more attractive. Naturally, the iconic warehouse retailer — where you can get your 80 pounds of mayonnaise — received positive attention as the crisis in Ukraine started unfolding.

For one thing, the war sparked mass purchases. With fuel prices skyrocketing, it’s only a matter of time before the costs start seeping into consumer goods. After all, the goods didn’t fly themselves into your favorite Costco location’s aisles. Therefore, anything that requires shipment from one place to another will likely see a significant percentage-wise cost increase.

Even better from an investor’s perspective, people have no choice but to pay up. Yes, it’s a terrible notion to bring up. It’s also reality, I’m afraid. No matter how advanced we become as a society, the basic laws of the universe still apply: We have to eat and sleep.

Plus, you don’t necessarily have to feel too bad about advantaging COST stock. The underlying company enjoys a fairly affluent consumer base.

Johnson & Johnson (JNJ)

A red Johnson & Johnson (JNJ) sign hangs inside in Moscow, Russia.

Source: Alexander Tolstykh / Shutterstock.com

One of the biggest news items of last year, pharmaceutical giant Johnson & Johnson announced that it will spin off its consumer business into a new publicly traded company by November 2023. In the meantime, investors looking to protect themselves with stagflation stocks to buy may want to consider JNJ.

So far this year, shares are going through a middling performance. That said, a gain of 3% YTD might as well be a win when the major indices are struggling for traction. Further, under stagflation, many if not most consumers will likely reduce their spending on discretionary purchases or for products and services that are not particularly critical.

But medicine? That’s always going to be critical. In addition, prior to the geopolitical lesson that everyone learned from Putin’s Russia, Americans recognized the danger of outsourcing core healthcare needs to countries like China. Therefore, consumers may take a greater interest in this space, especially with memories of the chaos of 2020 still fresh in their memory.

As well, health is one of the indispensable product/service categories so people will pay up. This makes JNJ an intriguing name among stagflation stocks to buy.

Wheaton Precious Metals (WPM)

Wheaton Precious Metals logo close-up on website page. WPM stock.

Source: Postmodern Studio / Shutterstock

An obvious idea but one well worth consideration, Wheaton Precious Metals is finally looking to make good on its upside potential after years of disappointing performances during the pre-Covid era. The clear benefit to WPM under the present circumstances is that its key underlying assets generally respond well to the fear trade.

With inflation shooting skyward due to the war and its resultant sanctions and supply chain disruptions, physical assets with intrinsic value have suddenly become viable. So long as conditions continue on this path — frankly, they’ll probably worsen, which may be a net benefit for the metals — WPM may attract attention from those seeking stagflation stocks to buy.

What makes Wheaton an ideal trade is that it’s a streaming company rather than a pure-play miner. Instead of directly extracting metals from the ground, streaming companies pay for metals production at a discount in exchange for upfront financing of mining firms seeking capital. This approach lessens some of the volatility inherent in the metals mining business and fosters greater price predictability.

Ovintiv (OVV)

Pipelines in the desert

Source: bht2000 / Shutterstock.com

Formerly known as Encana Corporation, Ovintiv is a hydrocarbon exploration and production company headquartered in Denver, Colorado. On the surface, OVV is one of the more controversial names among stagflation stocks to buy. Fossil fuel dependency on countries that have dubious relations with the U.S. — such as Russia — has contributed to our woes.

Rather than playing more into this hydrocarbon game, why not invest in alternative solutions such as renewable energy? That way, we don’t have to compromise our security and our principles.

Well, the idea of finding a workable solution is easier said than done, primarily because hydrocarbons lever considerable energy density. Short of fueling our cars with nuclear power, fossil fuels are relatively cheap and convenient. Plus, we have the infrastructure to accommodate.

Therefore, the realistic solution is to consider fossil fuels from domestic pipelines or to nations which are unlikely to bomb us (hello Canada!). Ovintiv may be part of this solution, which explores and produces oil and natural gas in North America.

On the date of publication, Josh Enomoto 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.

Article printed from InvestorPlace Media, https://investorplace.com/2022/03/7-stagflation-stocks-to-buy-to-combat-slow-growth-and-inflation/.

©2024 InvestorPlace Media, LLC