Several days ago, Federal Reserve chair Jerome Powell caught the world’s attention when he made his monetary policy remarks at the annual economic symposium at Jackson Hole, Wyoming, which continues to set the framework for stocks to buy this week. Essentially, Powell stressed that the central bank must absorb some pain today to avoid catastrophe tomorrow. It’s not what the market wanted to hear, hence the subsequent correction.
Now that Wall Street digested the broader implications, it appears that it’s on board with Powell’s directive. Recently, the Fed chair stressed during an appearance at a Cato Institute event that the central bank must aggressively attack inflation. Last week, the benchmark S&P 500 gained more than 2%, suggesting that the Street accepts the monetary pivot. Nevertheless, a theme materialized: deflation.
Under the previous inflationary cycle, consumers operated under an incentive to buy products today since spending power will erode. In contrast, a deflationary cycle rewards financial abstinence as the dollar will rise in value over time. In fact, purchasing power increased between June and July. This has serious implications for stocks to buy this week.
Effectively, investors must consider consistently relevant public companies. Below are seven intriguing stocks to buy this week.
|ADM||Archer Daniels Midland||$88.90|
|PG||Procter & Gamble||$140.63|
Archer Daniels Midland (ADM)
A multinational food processing and commodities trading firm, Archer Daniels Midland (NYSE:ADM) commands permanent relevance. No matter what happens in the economy, people must eat. Subsequently, it doesn’t matter whether we’re in an inflationary period or a deflationary spiral. People cannot afford not to put food on the table.
However, the main factor why ADM ranks among the stocks to buy this week comes down to robust financials. While Gurufocus considers the company “modestly overvalued,” investors receive a proven business that can handle major disruptions.
For instance, in 2019, ADM’s revenue per share (RPS) stood at 114.44. in the pandemic-disrupted 2020, the RPS only dipped down to 113.9. But by the following year, RPS jumped to a staggering 150.62.
For the company’s second quarter of 2022 earnings report, ADM posted a net income of $1.24 billion, up nearly 74% from the year-ago quarter. Finally, the company features a forward yield of 1.75% and 49 years of consecutive dividend increases.
Dominion Energy (D)
Whether investors and consumers face inflation or deflation, they must pay their utility bills. This type of permanent relevance makes Dominion Energy (NYSE:D) somewhat of a no-brainer for stocks to buy this week. Frankly, if the subject matter at hand was “stocks to buy this decade” (or even century), I’d probably go with Dominion or its ilk.
After all, the global economy continues to increase its dependency on energy, not lessen it. Unless you see an alternative for power distribution, Dominion presents a wise wager ahead of great uncertainties.
Financially, the company presents a compelling argument. Gurufocus labels D stock as “fairly valued.” Primarily, what investors receive in exchange for their risk capital is a solidly resilient and growing business. In 2019, Dominion’s RPS stood at 17.8. This metric only dipped to 17 before climbing back to 17.3 in 2021. On trailing-12-month (TTM) basis, RPS is at 18.2.
In Q2 2022, both revenue and operating income increased significantly from their respective year-ago tallies. Finally, Dominion features a forward yield of 3.2%.
Procter & Gamble (PG)
Another easy name to conjure up for stocks to buy this week, Procter & Gamble (NYSE:PG) presents an ideal profile for mitigating deflation. To understand why you must appreciate the reason investors hate lower prices, particularly in a deflationary cycle. Effectively, prices decline because the dollar rises in value. Therefore, by merely doing nothing — all other things being equal — consumers receive a no-risk positive return.
In other words, the worse the deflation, the greater the return on sitting on greenbacks. Should deflation become odious, any risk-on investment must be so compelling that people are willing to set aside “free money.”
Now, a household goods giant like Procter & Gamble draws intrigue during deflation because of its relevance. Look at its brands under its corporate umbrella: Tide, Oral-B, Bounty, Luvs, Head & Shoulders, Charmin, and more. As awful as deflation is, it doesn’t prevent people from brushing their teeth and other bodily-related functions.
Therefore, just on pure fundamentals, PG is one of the stocks to buy this week.
While many people recognize Aflac (NYSE:AFL) from its humorous talking duck mascot, the company does serious business. Specializing in supplemental insurance, Aflac essentially covers the gap that mainline coverage plans might not. As its website demonstrates, even with the average medical insurance, policyholders could still be on the hook for massive costs. Therefore, Aflac brings peace of mind.
During a deflationary cycle, this issue could get tricky for many households. After all, deflation typically implies a massive hit to the economy. Examples include the Great Depression or more recently, Japan’s long struggle with chronic deflation. However, given the costs associated with an unexpected emergency, many people might reason that it’s worth getting holistic coverage.
To be fair, Aflac’s revenue on a TTM basis is $16.6 billion, compared to $17.6 billion posted in 2021. However, TTM net income is slightly above 2021’s result. Also, the Street likes AFL, gained 6.2% on a year-to-date basis. Compare that to the S&P 500 losing 15% YTD.
Lockheed Martin (LMT)
Mentioning Lockheed Martin (NYSE:LMT) on a list of stocks to buy this week may draw controversy for some. If that’s the case for you, you may want to skip ahead to the next market idea. However, those that don’t mind wading into a cynical framework may want to give LMT a shot.
Again, deflation imposes a tricky environment for stocks to buy this week (or any timeframe) because of the catalyst dearth. Unless an investment is so compelling that it must be acquired within a risk-on context, it’s better to just receive guaranteed returns. Well, Ukrainian resistance forces provided a massive catalyst — you can say quite literally — for LMT.
As you may know, Ukraine utilizes the High Mobility Artillery Rocket System (HIMARS) to great effect against Russian invading forces. Just recently, Reuters reported that Ukraine launched a counteroffensive, catching Moscow off guard. Undoubtedly, HIMARS has played a major role in the country’s military success.
And, Lockheed Martin manufactures HIMARS, meaning that its effectiveness could attract many, many suitors.
Morgan Stanley (MS)
Should deflation become the dominant theme of the market, financial services firm Morgan Stanley (NYSE:MS) could draw intrigue. Naturally, many investors may eyeball financial services because deflation also implies raised borrowing costs. Thus, companies specializing in lending programs may enjoy an increase to their bottom line. Of course, people and entities tend to avoid risk-on enterprises during deflationary cycles so this narrative could be a wash.
What I’m particularly interested in moving forward, though, is Morgan Stanley’s wealth management business. Under an inflationary cycle, the framework benefits stock-picking advisors of any caliber. Since the dollar will decline over time, you must do something with your money to protect and/or grow it.
However, deflation represents a completely different animal. As stated earlier, with deflation, the incentive pushes people to sit on their dollars and do nothing. Therefore, finding growth opportunities becomes that much more challenging.
If anyone can do it, though, it’s companies like Morgan Stanley. It’s risky but it’s worth a try for the speculative-minded.
Johnson Controls (JCI)
Obviously, the root word of deflation is “deflate” and that’s exactly what happens under such cycles. With borrowing costs rising, entrepreneurialism shrivels up as capital becomes harder to access. As consumers also sit on their greenbacks, revenues shrivel up. However, building equipment and systems provider Johnson Controls (NYSE:JCI) enjoys quite a different outlook.
Writing for Barchart Will Ashworth – who also contributes content for InvestorPlace – pointed out that in Q3 2022, Johnson Controls’ “organic sales rose 8% to $6.61 billion, while its adjusted earnings per share increased 3% over Q3 2021 to $0.85. More importantly, its field backlog grew 11% to $11.1 billion.”
“As a result,” wrote Ashworth, “shareholders won’t have to worry too much about business drying up in the near term.”
To be fair, JCI slipped nearly 27% YTD. However, over the trailing month, shares have gained nearly 5%. Therefore, those with a risk-on personality may want to put JCI on their radar for stocks to buy this week.
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.