7 Stocks to Buy as Inflation Fears Fade


  • Here are seven companies that should thrive even with higher inflation.
  • 3M (MMM): Growing demand for EV battery materials should help 3M.
  • Conagra Brands (CAG): Price hikes should help lift company profits this year.
  • Tyson Foods (TSN): Margin expansion in 2023 is likely as the pace of price hikes slows.
  • Verizon (VZ): 5G is a meaningful growth segment for this telecom.
  • WP Carey (WPC): Expect the company to negotiate bigger deals to boost its returns on real estate.
  • Weyerhaeuser (WY): Customers will rebuild inventory for timber to mitigate shipment-related risks.
  • Zillow (Z ZG): The real estate downturn should end when disposable income levels improve with lower inflation.
Stocks to Buy - 7 Stocks to Buy as Inflation Fears Fade

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After a rough 2022, investors are optimistic, bargain-hunting for top stocks to buy. Helping, markets are anticipating slower rate hikes from the Federal Reserve in Feb., and March. All after the Bureau of Labor Statistics reported a “cooler” inflation rate of 6.5% year over year. Granted, that’s still high, but it is showing some progress, which could encourage the Fed to slow down. That being said, I put together a quick list of seven top stocks to buy on growing optimism.

MMM 3M $122.62
CAG Conagra $37.43
TSN Tyson Foods $66.15
VZ Verizon $39.63
WPC WP Carey $84.13
WY Weyerhaeuser $32.36
Z ZG Zillow Group $44.42

Stocks to Buy: 3M (MMM)

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In late Oct., 3M (NYSE:MMM) cut its full-year forecasts on weaker consumer spending. It now expected full-year revenue to fall between 3% and 3.5%, down from prior guidance for a 0.5% to 2.5% fall. Adjusted EPS was also forecast to drop to a range of $10.10 to $10.35, as compared to earlier forecasts for a range of $10.30 to $10.80.

However, there may be some good news.  While CFO Monish Patolawala said inflation was still “persistent and broad-based,” there have been some signs of improvement. “So I would say if you look at what inflation we had in the third quarter, it was $225 million, and the fourth quarter, we are seeing somewhere between $100 million-$150 million,” Patolawala said, as quoted by MarketWatch. “So there’s a little moderation.”

Also, even with the issues, the company was able to pay a dividend of $1.49 a share in Dec. We’ll also get a better idea of how 3M is doing when it reports fourth-quarter earnings on Jan. 24.

Stocks to Buy: Conagra Brands (CAG)

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Conagra Brands (NYSE:CAG) posted a Q2 net sales increase of 8.3% Y/Y. The packaged goods supplier already reassured investors that inflation will not hurt growth. It expects organic net sales this fiscal year to grow by 7% to 8%. In addition, with a $2.70 earnings per share forecast, CAG stock trades at an inexpensive 15.5 times price-to-earnings ratio.

Conagra is resilient and a stock to buy. CEO Sean Connolly said that the company thrived amid the inflation super cycle. It has a strong brand, strong processes, and great people working in the firm. As inflation fears subside, Conagra will optimize its product mix to maximize customer demand levels.

Inflation hit company demand earlier than most other food companies. The company managed the negative impact by ramping up prices sooner. Lower costs will sustain a gross margin of around 28.2%.

Stocks to Buy: Tyson Foods (TSN)

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With regards to Tyson Foods (NYSE:TSN), high beef prices hurt demand. However, the demand for beef globally will remain resilient. For example, Tyson has strong selling tailwinds in its different channels throughout Asia.

In the chicken segment, Tyson has more work ahead to improve the business. It expects margins in the 6% to 8% range in 2023. It will invest in its facilities and capacity to increase its service quality to customers. Tyson will potentially report a rebound in its prepared foods business. As a leader in this market, selling volume should rise as price hikes slow considerably this year. In the fourth quarter, Tyson increased promotions, which resulted in strong volume performance. This year, it will cut costs to sustain higher margins.

Verizon (VZ)

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Verizon (NYSE:VZ) is another hot stock to buy. The company carries a dividend yield of 6.6%, which is above the current rate of inflation. The telecom firm enjoys steady performance on the consumer side. It has affordable products from the Lifeline and TracFone brands. Premium brands have higher profitability. This segment will outperform investor expectations as Verizon not only retains customers but acquires more.

Private 5G networks and mobile edge computing have asymmetric upside potential. Verizon has small deals. However, as the platform grows, it will add more enterprise customers over the long term. Also, as inflation fades, consumers will have far more disposable income to spend on extra services, which should inflate Verizon’s bottom line.

WP Carey (WPC)

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W.P. Carey (NYSE:WPC) is a net lease real estate investment trust (REIT), which means the company leasing its property pays all or part of the taxes, insurance fees, and maintenance costs. Also, about 55% of the company’s rental agreements include contractual rent increases for inflation. So, as inflation ticks high, rents tick higher. In fact, as CEO Jason Fox recently noted, “As current CPI numbers flow through to rents, we expect our same-store growth to move even higher in 2023, and to continue seeing the benefits into 2024.”

Plus, “Cap rates continued to move higher during the fourth quarter and that the large majority of the $160 million of investments we completed during that timeframe were industrial and warehouse properties with cap rates in the high sixes and into the sevens,” added the CEO. “We believe this sets up an environment in 2023 conducive to higher investment activity at wider spreads. We also remain uniquely positioned within the net lease sector for internal growth, with over half of our portfolio having rent escalations tied to CPI.”

Weyerhaeuser (WY)

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Weyerhaeuser (NYSE:WY) is a timberland company among the cyclical stocks to buy. Weyerhaeuser will allocate its increased cash flow by returning it to shareholders. It could buy back stock or issue a supplemental dividend. The company could use the excess cash to pay down its debt further. Markets will not appreciate debt reduction in the short term. However, the company will thrive in the long term by lowering its interest payments on debt.

Weyerhaeuser could recoup the weak demand for timber this year. Customers previously built up inventories. After drawing those levels lower, they will increase them again. The trucking and logging capacity did not return to normal levels yet. That suggests customers will want to hold more inventory to mitigate operational risks.

Zillow (Z, ZG)

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Zillow (NASDAQ:Z, ZG) is a tech real-estate marketplace. Real estate demand weakened considerably during the interest rate increase cycle. Home inventory settled at around six million recently. At this average inventory level, improved affordability should increase sales activity.

Zillow has around 3% of the transaction share, according to COO Jeremy Wacksman . Its share will increase as customers seek the service of agents and loan officers on its site. Zillow will continue to build its growth pillars to drive its market share growth.

The industry needs to overcome the volatile macro headwinds first. When inflation slows, customers will have better disposable incomes. The sector will increase its advertising activity when demand improves. Zillow is working through its strategy of enhancing its partner network. Investors will recognize the rising return on investments when the real estate downturn reverses. Z stock broke out at the start of 2023.  When shares pull back, it is best for the real estate stocks to buy.

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.

Article printed from InvestorPlace Media, https://investorplace.com/2023/01/7-stocks-to-buy-as-inflation-fears-fade/.

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