The stock market jumped when the U.S. Labor Department reported the consumer price index grew 8.5% year over year in the month of July, down from a 9.1% advance in June. Inflation may have finally peaked, but the Federal Reserve is likely to continue to raise interest rates until inflation is back near its long-term target of 2%. Bank of America recently compiled a pro-inflation stock screen to identify stocks that have historically demonstrated a strong positive correlation with inflation. While other companies battle rising costs, inflation may actually help these stocks outperform. Here are seven inflation investments for investors looking to protect their portfolios.
Mosaic Co. (ticker: MOS)
Mosaic produces concentrated phosphate and potash crop nutrients for the agricultural industry. Analyst Steve Byrne says Mosaic’s second-quarter earnings numbers were in line with his expectations. Fertilizer prices hit record highs in 2022 following Russia’s invasion of Ukraine, but Byrne projects phosphate and potash prices will pull back in the second half of 2022. Mosaic management recently said it plans to return 100% of its free cash flow to shareholders. Byrne expects $2 billion in buybacks and says there is potential for a special dividend as well. Bank of America has a “buy” rating and $88 price target for MOS stock.
APA Corp. (APA)
Formerly known as Apache, APA is a major U.S. oil and gas exploration and production company. Analyst Doug Leggate says APA returned 43% of its free cash flow to shareholders in the first half of 2022 and is positioned to accelerate its share buybacks in the second half of the year. Leggate says APA’s second quarter was “messy” and its guidance was “light,” but the value of APA’s cash flow makes the stock one of the most undervalued U.S. exploration and production stocks in the market. Bank of America has a “buy” rating and $62 price target for APA stock.
Applied Materials Inc. (AMAT)
Applied Materials is the world’s leading producer of wafer fabrication equipment for the semiconductor industry. Analyst Vivek Arya says wafer fab equipment spending will decline 5% in 2023. However, Applied Materials’ fiscal fourth-quarter guidance exceeded expectations and its Semi Systems segment growth is accelerating. In addition, Arya says the company’s gross margins have expanded since bottoming in July and the company’s commitment to aggressive share buybacks should help support the stock. Applied Materials’ logic and foundry growth and 20% free cash flow margins are also impressive. Bank of America has a “buy” rating and $125 price target for AMAT stock.
Halliburton Co. (HAL)
Halliburton is a leading U.S. oilfield services company. Analyst Chase Mulvehill says strong operating leverage, pricing power and disciplined spending are all tail winds for Halliburton. Halliburton’s international revenues were up 20% in the first half of the year, and Mulvehill says the company will continue to report strong growth numbers into 2023. Mulvehill projects 2022 free cash flow, or FCF, of $1.5 billion and 2023 FCF of $2.7 billion. He says the company can also raise its dividend to pre-pandemic levels in the medium term. Bank of America has a “buy” rating and $35 price target for HAL stock.
Advanced Micro Devices Inc. (AMD)
Semiconductor company Advanced Micro Devices produces personal computer central processing units and graphics processing units, as well as server chips for data centers. AMD management is confident about the company’s data center growth opportunities and the benefits of integrating Xilinx into its operations. Arya is also bullish on AMD’s conservative outlook for the personal computing market and its pricing discipline. AMD shares trade at just 21.6 times Arya’s 2023 earnings per share projections, an attractive valuation for a stock that reported 70.1% revenue growth in the most recent quarter. Bank of America has a “buy” rating and $120 price target for AMD stock.
SVB Financial Group (SIVB)
SVB Financial is the parent of Silicon Valley Bank, a commercial bank that specializes in technology, life sciences, wineries, and private equity and venture capital firms. Through Aug. 24, SVB shares are down 37% in 2022 on concerns that plummeting tech sector valuations could hit SVB’s early-stage venture capital and private equity customers. Analyst Ebrahim Poonawala says the sharp correction in tech company valuations coupled with SVB’s second-quarter earnings miss and guidance cut has understandably spooked investors. However, he says SVB’s core business model remains one of the best in the banking industry. Bank of America has a “buy” rating and $525 price target for SIVB stock.
Tapestry Inc. (TPR)
Tapestry is the parent company of luxury brands Coach, Kate Spade New York and Stuart Weitzman. The company produces accessories, handbags, footwear, fragrances and other products. Rising prices will likely not deter Tapestry’s high-end customer base. Analyst Lorraine Hutchinson says Kate Spade, Coach and Stuart Weitzman generated impressive average unit retail growth in the fiscal fourth quarter, and Tapestry’s overall revenue growth should be stronger in the second half of the year as the China market recovers. China sales were down 32% in the fourth quarter. Bank of America has a “buy” rating and $50 price target for TPR stock.
7 stocks that are good inflation investments:
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