U.S. inflation rates took off last year and the trend persists in 2022. Annual inflation soared to a staggering 7.5% in January — a record level last seen back in 1982. Individual incomes could fail to catch up with rising prices and escalating costs of living, while high inflation can wipe away significant chunks of purchasing power from retirement portfolios. Its therefore important that investors look up the best stocks to buy for inflation protection right now.
The truth is, the effects of high inflation can be extremely ugly if not well hedged against in an investment portfolio. Not all companies are the same, and most businesses will face rising operating costs, shrinking margins and declining sales volumes as they fail to pass rising costs to price-sensitive customers, who tighten their belts as inflation bites their pockets.
Thus, investors should buy more stocks of resilient consumer defensive businesses with high pricing power. These can pass on rising costs to customers without losing volumes. Companies offering exposure to inflation resilient commodities, real estate and consumer basics can fair better during inflationary periods.
These 10 best stocks to buy for inflation could help shield a retirement portfolio from the negative impact of high inflation:
- Tyson Foods (NYSE:TSN)
- Walmart (NYSE:WMT)
- Dollar Tree (NASDAQ:DLTR)
- Advanced Micro Devices (NASDAQ:AMD)
- Coca-Cola (NYSE:KO)
- PepsiCo (NASDAQ:PEP)
- Mosaic Company (NYSE:MOS)
- Freeport-MacMoran Inc. (NYSE:FCX)
- AvalonBay Communities (NYSE:AVB)
- Bunge Limited (NYSE:BG)
Let’s have a closer look at each.
Best Stocks to Buy for Inflation: Tyson Foods (TSN)
Tyson Foods is one of the world’s largest food companies, producing around 20% of the beef, pork, and chicken in the United States.
The company’s fourth-quarter 2021 sales increased by 11.8% to beat analyst expectations despite weaker volumes because of inflation-justified pricing. Although first-quarter 2022 saw sales volumes increase by a mere .3% year-over-year (YOY), average prices increased by 19.6% YOY to boost revenue and expand Tyson Foods’ operating income margins.
Inflation has been a significant driver of revenue and earnings growth for TSN stock lately. Tyson Foods successfully passes down inflation to its customers and increased its revenue without increasing business volumes. The company gets more profitable as meat prices rise.
Further, consumers usually keep buying basics like protein even if their real incomes shrink with rising inflation. This presents TSN as one of the best stocks to buy for inflation protection in a portfolio. Its business remains intact.
TSN stock has returned over 858% total return over the past 20 years and increased its dividend by more than 1,000% during the past decade.
Retail giant Walmart sells consumer brands that continue to perform well during inflationary periods. Known as a “discounter,” the grocery store and e-commerce giant sees inflation as an opportunity to gain market share and emphasize its commitment to value for customers.
Walmart’s total revenue for 2021 was $572.8 billion, up 2.4% while the company divested of business that could have contributed $33 billion more to the business.
Consumers flock to value offerings as inflation bites their purchasing power, and Walmart stock is a perfect inflation stock to buy right now if investors expect high inflation to persist for longer. The business enjoys growing market share during troublesome inflation times.
“We’ve always been an inflation fighter for customers,” Walmart CFO Brett Biggs said in an interview with CNBC. “Our scale and the product breadth that we have allows us to do things in a way that is beneficial to customers and beneficial to shareholders.”
Best Stocks to Buy for Inflation: Dollar Tree (DLTR)
Dollar Tree is an American multi-price-point chain of discount variety stores operating more than 15,000 stores throughout 48 U.S. states and five Canadian provinces.
The retail giant held the line on the $1 price point for over 30 years, but due to rising inflation, the company changed its strategy by bringing prices above $1. This allows Dollar Tree to offer consumers more product selections, rack in more revenue and protect margins to make DLTR one of the best stocks to buy for inflation.
The retailer is aggressively expanding its Dollar Tree Plus branded store network to capture the increasing number of price-sensitive consumers. Plans are in place for the value retailer to reach 5,000 Dollar Tree Plus stores by 2024.
Analysts expect net income margins to rebound in 2022 and attach a five-year earnings growth rate estimate of 14.9% per annum on DLTR stock.
Most noteworthy, DLTR stock exhibits strong momentum right now. Shares trade near their all-time high of $149.37. Any dips could be perfect buying opportunities.
Advanced Micro Devices (AMD)
Advanced Micro Devices (AMD) is a leading multinational semiconductor company that could offer inflation-beating returns this year. Demand for AMD’s market-leading chips has surged in recent years as the company steals Intel’s (NASDAQ:INTC) market share across the board, and that trend might not change soon.
AMD’s revenue increased by a staggering 68% YOY in 2021. Gross margins expanded to a record 48% and operating margins grew from 9.4% in 2019 to 22% in 2021. The company has rediscovered its mojo, and the market expects sales to rise 54% in 2022 as AMD consolidates its lead in the high-end enterprise chips market.
Most noteworthy, even if personal computer (PC) demand softens up after the work-from-home surge during the COVID-19 pandemic, AMD, Intel and Nvidia’s (NASDAQ:NVDA) product prices are still expected to increase in 2022.
AMD’s asset-light business model, which outsources manufacturing to foundries, could somewhat insulate it from rising operating costs as inflation soars.
$10,000 invested in AMD stock 10 years ago could have grown to more than $162,000 today with dividend reinvestments.
Best Stocks to Buy for Inflation: Coca-Cola (KO)
One of the leading global beverages giants The Coca-Cola Company is a relatively safer bet that produces massive earnings and free cash flows during inflationary times. KO stock should benefit from its strong global brands that continue to thrive even as inflationary pressures wreck household spending patterns.
Although costs from aluminum cans to labor and shipping surged over the last year, Coca-Cola has managed to increase its product prices in the face of growing global demand. As a low-labor-cost business, Coca-Cola should emerge largely unscathed from any high-inflation-induced economic stress.
In its 2022 guidance, the company has a 7% to 8% revenue growth target, accompanied by a 8% to 10% annual increase in earnings per share and strong free cash flow generation. Investors could still earn respectable, relatively low-risk returns on Coca-Cola’s stock in the long term.
$10,000 invested in KO stock 10 years ago could have grown to nearly $25,000 today, with dividend reinvestments. The current KO stock dividend yields 2.8% annually.
PepsiCo stock shares many attributes with Coca-Cola, but it enjoys an added inflation advantage that KO lacks. The company owns strong consumer brands that will remain attractive even if inflation bites, but there’s more.
The company has popular small-priced consumer snacks including Fritos, Walkers, Cheetos, Lays and Doritos that could show low price elasticity of demand if it adjusts prices for rising costs due to inflation.
Most noteworthy, PepsiCo controls its supply chain up to the retail store. It has room to control costs. PEP stock investors should take note that fourth-quarter revenue rose 12.4% despite single-digit volume increases.
Best Stocks to Buy for Inflation: Mosaic Company (MOS)
The Mosaic Company’s stock is one of the best stocks to buy for inflation because it supplies basic primary agricultural inputs its customers can’t resist buying even as prices rise. Mosaic sells potash, phosphate and chemicals.
Canpotex, Mosaic’s joint-venture with Nutrien Ltd. (NYSE:NTR) recently signed a huge deal to supply China and India with potash fertilizer at prices double 2021 levels. The latest Canpotex contracts price with India Potash and China at $590 per metric ton through December 2022 compares favorably with $247 per metric ton negotiated by Belarusian suppliers last year.
MOS stock is well-positioned to outperform the market in 2022. Its investors could easily reap above-inflation returns as they hold this stock.
Freeport-MacMoran Inc. (FCX)
Still, with commodities companies, Freeport-McMoran mines for more copper than any publicly-traded firm in the world, and the company benefits from rising copper prices as world economies rebound post the pandemic.
World copper prices have risen dramatically over the past three years, and prices could continue to soar as electric vehicles (EV) begin to replace our old internal combustion engines during this decade. An increased focus on green energy projects across the world means increasing demand for copper wire. Additionally, the company’s rising gold production amplifies FCX stock’s upside as gold prices rebound with geopolitical crises in 2022.
FCX stock investors could see the company reap growing revenues, earn increasing profits and distribute ever-abundant cash flows as commodity prices rise.
Best Stocks to Buy for Inflation: AvalonBay Communities (AVB)
AvalonBay Communities is a real estate investment trust (REIT) that owns a growing portfolio of 297 apartment communities containing 87,992 apartment homes in 12 U.S. states and the District of Columbia. Real estate is a beautiful asset class to add to any portfolio, largely for its proven ability to retain real value during inflation.
Rentals and real estate prices are some of the biggest components in any national inflation statistics. As a residential real estate operator, AvalonBay’s asset values rise with inflation, and the trust’s short-term leases protect its income from rising inflation as rentals are renegotiated at each lease expiry date.
Most noteworthy, the market remains hot as housing formation continues to accelerate since the early 2000s — a trend that could persist into the next decade. More than three million families were created during the COVID-19 pandemic. More tenants are coming.
Rent growth should insulate investors in AVB units from inflation impacts, and growing distributions could shield a retirement portfolio’s purchasing power from inflation effects. Returns may closely track or beat general inflation.
Bunge Limited (BG)
Agricultural commodities giant Bunge Ltd. demonstrated in 2021 how a well-positioned business can wildly benefit from rising inflation.
Its agribusiness segment sales increased by 45% YOY in 2021 despite a .7% decline in comparable volumes. Likewise, refined and specialty oils sales jumped 39% over 2020 revenue even as volumes declined by 3.4% annually. Commodity price inflation lifted BG’s earnings margins and boosted its cash flows.
Analysts expect a further 39% revenue growth in 2022 as commodities continue to rally this year. BG stock has returned nearly 12% so far this year, and returns could be higher if the business executes well again this year.
On the date of publication, Brian Paradza held Advanced Micro Devices (AMD) common stock. He did not have (either directly or indirectly) any positions in any other securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.