Despite the pandemic, the stock market has had a decent year so far. Right now, the Dow Jones Industrial Average is up 14% year-to-date (YTD) while the S&P 500 is up over 23% YTD. But with the threat of inflation currently stoking fears in the fourth quarter, now is the time to start considering inflation stocks.
Inflation stocks provide some protection when prices begin to skyrocket. In October, the consumer price index rose 6.2% from a year ago, which is the biggest increase in 30 years. Core inflation also rose by an alarming rate, moving higher by 4.6% from a year ago.
But all is not lost. CNBC “Mad Money” host Jim Cramer says there are plenty of ways to grow your portfolio even when inflation rises. Cramer says that some of the best inflation stocks come from banking, large pharmaceuticals and tech companies. He noted the following:
“That’s a huge chunk of this market, unlike any combination I’ve ever seen. Plenty of winners out there if you just stop freaking out and start looking at the opportunities.”
Other proven strategies include looking for solid dividend growth, as well as seeking names that help consumers stretch their paychecks.
Here are nine solid inflation stocks to buy in Q4:
- Apple (NASDAQ:AAPL)
- American Express (NYSE:AXP)
- Chevron (NYSE:CVX)
- Dollar General (NYSE:DG)
- Dollar Tree (NASDAQ:DLTR)
- Newmont (NYSE:NEM)
- Nvidia (NASDAQ:NVDA)
- Target (NYSE:TGT)
- Walmart (NYSE:WMT)
Inflation Stocks to Buy: Apple (AAPL)
First up on this list of inflation stocks, Apple is one of those names that could possibly be considered inflation-proof. With a market capitalization of more than $2.6 trillion as well as more than $191 billion in cash on hand, AAPL stock can easily withstand any downturn in the market.
But you shouldn’t expect Apple to drop at all. Returns so far in 2021 are 24%. The company should also see strong sales numbers for the holiday shopping season in Q4. Wedbush analyst Daniel Ives says Apple was expected to sell 10 million iPhones over the Black Friday weekend.
This company’s fiscal Q4 earnings came in a $1.24 per share, up around 70% from a year ago. For the quarter, sales also rose 29% to $83.4 billion. However, revenue missed analyst expectations due to semiconductor chip shortages.
American Express (AXP)
American Express isn’t the biggest or best-known name in the credit card space. However, AXP stock may be one of the best inflation stocks to buy during these inflationary times.
Why? Well, American Express caters to business clients as well as individuals who are more well-off. It makes 82% of its money “from discount fees, card fees, travel-related commissions and other revenue.” Only 18% of its money comes from interest.
In the third quarter, AXP delivered $2.27 per share and revenue of $10.9 billion. Both numbers beat analyst estimates.
This pick is up nearly 28% so far in 2021. Currently, it trades at a forward price-earnings (P/E) ratio of 16.56 times and a forward price-sales (P/S) ratio of 2.93 times.
Inflation Stocks to Buy: Chevron (CVX)
What’s one of the first thing that investors do when they fear inflation? They buy oil. One hedge fund, Man Group, says that energy commodities were the “best performing asset class” in the last eight inflationary periods. That’s why a major oil company like Chevron is a solid pick when looking for inflation stocks.
Chevron is already up more than 37% YTD, but even at these lofty highs CVX stock is far off the highs it reached back in 2018. Right now, it’s coming off a huge Q3, in which the company posted its best quarterly profit in eight years. Net income was $6.11 billion, versus a loss of $207 million in the prior-year period. Finally, cash flow from operations came in at $8.5 billion.
What happened? Of course, Chevron and other oil companies suffered greatly last year when the oil market collapsed because of the pandemic. Because of that, Chevron made big budget cuts. Now that’s being reflected in this year’s profits. In fact, Chevron says that its spending so far this year is 22% lower than a year ago. That gives it an outsized profit margin.
On top of it all, CVX stock pays a great 4.68% dividend.
Dollar General (DG)
Inflation means that consumers will have less money to spend for both necessary and discretionary spending. For instance, there are already reports of meat and other staples costing more today. Because of that, I always consider dollar stores like Dollar General when I think about inflation stocks.
Based in Tennessee, Dollar General operates more than 17,600 stores across some 46 states. This company’s strategy is to put stores in neighborhoods in order to spread its footprint as wide as possible. Once inside, customers can fine low-cost food, snacks, cleanings supplies, health and beauty products, clothing and seasonal items.
For the year, Dollar General stock is up 6%. Revenue is up by around 53% since 2017, according to Seeking Alpha. What’s more, the company has a reasonable forward P/E of 22 times.
When it comes to DG stock, analyst sentiment is solid. Out of 27 analysts, 22 are bullish or very bullish. Meanwhile, 3 other analysts remain neutral on DG stock.
Inflation Stocks to Buy: Dollar Tree (DLTR)
Based in Virginia, Dollar Tree is a different kind of discount retailer than Dollar General. With more than 15,000 stores across 48 states as well as in Canada, Dollar Tree buys bulk items and sells them at low prices.
How low? Until recently, items in the store were a dollar (hence the name), but this pick of the inflation stocks recently announced that it was raising the prices of items to $1.25. Additionally, according to NPR, Dollar Tree has been testing higher-priced items for a few months, including adding $3 and $5 products in its Dollar Tree Plus stores.
If nothing else, raising prices will allow Dollar Tree to expand and sell a wider variety of sizes and products.
Most recently, Q3 earnings came in at $6.42 billion and earnings at 96 cents per share. Both exceeded analyst expectations of $6.41 billion and 95 cents per share. Currently, DLTR stock is up a whopping 25% YTD in 2021.
Next up on this list of inflation stocks is Newmont. Gold is a natural hedge against inflation and a market downturn. Sure, cryptocurrencies are flashier and have had a much higher return in the last few months. Still, NEM stock is a solid pick here.
Newmont is the world’s largest gold miner. What’s more, Joule Financial’s Quint Tatro recently told CNBC that NEM is one of his top picks against inflation. The company added to its position in NEM stock after the consumer price index report came out.
“Newmont has an incredible balance sheet. It is truly a proxy for gold. It should move in lockstep with gold if we’re right, and we get paid almost 4% to wait […] I think it will do very well […] You’re getting it at a discount, and I believe that it will continue to rise with gold if we continue to see core inflation move up as well.”
Right now, NEM stock is down by around 8% so far this year. But Fundamental Research analyst Siddharth Rajeev maintained his “buy” rating on the stock, setting a price target of $63.10. That represents more than 14% upside today, which would be welcome during an inflationary run.
Inflation Stocks to Buy: Nvidia (NVDA)
According to VandaTrack, which is a Vanda Research flow tracker that measures net stock purchases, NVDA stock was one of the most-purchased equities on Wall Street in November.
Why? Well, Nvidia is absolutely on fire. Up by more than 140% so far in 2021, Nvidia is currently priced at more than $320 per share.
Recognized as one of the world’s biggest semiconductor companies, Nvidia is in an enviable position. Remember, we are still in a chip shortage — and those chips are needed to run everything from electric vehicles (EVs) to computers and small electronics.
If supply and demand rules the world, then this name is in the catbird seat. And that demand is not going to go away just because of inflation.
This pick of the inflation stocks reported its Q3 earnings on Nov. 17. For the period, revenue was up 50% year-over-year (YOY) to $7.1 billion, beating analyst expectations of $6.81 billion. Earnings per share was $1.17, which topped expectations of $1.11.
Next up on this pick of inflation stocks, Target is a discount retailer that operates higher-end stores than Dollar General and its peers. Presently, TGT stock is up nearly 40% so far in 2021 but slipped after the company reported Q3 earnings in mid-November.
What happened? Well, the company did manage to beat analyst expectations in earnings and revenue. Plus, it raised its outlook. But Target also warned that its margins would be pressured in the coming months as labor costs increase and supply-chain disruptions persist.
No worries, though. That dip is just a solid buying opportunity in TGT stock. One Bank of America analyst also agrees, according to CNBC. Analysts at Raymond James and DA Davidson raised their price targets for Target shares as well.
Inflation Stocks to Buy: Walmart (WMT)
That brings us to the last entry on this list of inflation stocks: Walmart. This name is the biggest retailer on the planet and boasts revenues of $519 billion according to the National Retail Federation. Walmart operates 10,500 stores across 24 countries.
With its expanding footprint (Walmart owns Sam’s Club, among other brands) and its growing online presence, Walmart had a solid Q3. But what really made the difference was the company’s grocery offerings. Walmart says its size helped it navigate supply chains and keep shelves stocked. CFO Brett Biggs told CNBC the following:
“We’ve always been an inflation fighter for customers […] 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.”
For the quarter, revenue came in at $140.53 billion, versus the $135.6 billion that analysts expected. What’s more, earnings per share came in at $1.45 versus expectations of $1.40.
On the date of publication, Patrick Sanders 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.
Patrick Sanders is a freelance writer and editor in Maryland, and from 2015 to 2019 was head of the investment advice section at U.S. News & World Report. Follow him on Twitter at @1patricksanders. As of this writing, he did not hold a position in any of the aforementioned securities.