The Kind Of Inflation-Beating Stocks You Want To Own Right Now…
If you could pick one word that best sums up 2022 so far it would be… inflation.
Prices have been rising faster this year than at any time in the last 40 years.
The latest reading in April was an increase of 8.3%. But you don’t need to wait for the Bureau of Labor Statistics’ latest print to know it is bad (the next release for May will be June 10).
You see it every day and feel it in your pocketbook. The prices of everything from food to energy to cars to housing have been soaring.
Because of the persistent inflation, the Federal Reserve has been forced to reverse its easy-money policies. That includes turning off the printing presses (aka buying bonds) and hiking interest rates. The Fed hopes to get inflation below 3% within one year and down to around 2% within two years.
Either way, the stock market doesn’t like high inflation… or the higher interest rates required to bring it down. The S&P 500 and tech-focused Nasdaq indexes are off to their worst starts since the 1970s (down 12.7% and 22% YTD, respectively).
Over at my premium service, Capital Wealth Letter, we’ve been bracing for this rocky start since the beginning of the year. We loaded up on commodity stocks, including one energy name and two gold miners.
So far, these investments have helped cushion this tumultuous market environment. All three positions are in the green, with our energy pick leading the charge with a nice 50% gain in just four months. For comparison, the S&P 500 has lost 10% over the same period.
We also built up our cash pile by unloading a number of stocks from the portfolio. I even recommended socking away some cash in I Bonds, which currently sport an annualized yield of 9.62%.
Another Way To Beat Inflation
All of these things are exactly what investors should be doing in a market environment like this. It’s straight out of the textbook, and I hope you were able to follow our lead in these moves. (Don’t worry if you haven’t, there’s still time.)
Today, I want to throw out another suggestion for how you can combat inflation.
As prices continue to climb, companies like Visa (NYSE: V) and American Express (NYSE: AXP) should hold up well. They earn a percentage of the value of every transaction processed through their networks. As the cost of everything from food to clothing to gas continues to rise, they make more money.
Last quarter, the value of transactions processed on American Express’ payment network jumped by 30%. And the busy travel season is just getting started…
Shares of American Express have held steady this year (up about 4% versus the market’s -13.3% loss as I write this).
This is a company that’s always near the top of my “shopping list” when we see market turmoil. Right now, the stock trades at an enterprise value (value of all its shares of stock plus debt less cash) to EBITDA of 11.7. When it trades for less than 10 times EBITDA, I think that’s a great buy.
For reference, when I originally recommended this stock back in 2016 we were able to buy shares for just seven times EBITDA. It hadn’t traded that low since the financial crisis in 2009.
Back then investors were down on the stock because it had just lost its co-branding partnership with Costco Wholesale (Nasdaq: CSCO). Shares had taken it on the chin and were down as much as 45% from recent highs.
We took advantage and scooped up shares. And as they say, the rest was history…
Shares have crushed the broader market since then.
Similar story for Visa (NYSE: V). We’ve owned it since December of 2016, delivering a return of 186% – and trouncing the market in the process.
Both of these stocks have delivered for us through thick and thin. And that’s exactly what you want to own right now. It’s almost never a bad idea to consider buying them as long as valuations are reasonable.
As I’ve said before, I don’t necessarily know when the bottom will be in – I don’t have a crystal ball. But I wouldn’t blame you if you wanted to start nibbling on stocks like this right now, because not only will they hold up in an inflationary environment – but they’re long-term wealth creators, too.
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