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5 U.S. Stocks to Buy During Inflation

Fearing inflation? These five all-weather U.S. stocks can get you through any investing climate, says Harvi Sadhra of Hashtag Investing.

This post was written by Harvi Sadhra, the CEO & Founder of Hashtag Investing. Hashtag Investing is the highest quality online community for stock investors looking to learn and share stock investing ideas and strategies. With over 5,000+ global investors, Hashtag Investing is a great resource for investors of all experience levels to partake in daily discussions.

April inflation numbers are out, and they are not pretty. The U.S. Consumer Price Index (CPI) inflation has jumped 4.2%, the fastest since 2008. Inflation chips away at the real value of money, and it costs more to live the same lifestyle you do now. You need to find a smart way to beat inflation consistently. Investing in equities is usually the best option to do so.

Here are five stocks that we think will help you beat inflation:

1. Progressive (PGR)

Progressive Corporation is one of the largest vehicle insurance providers in the United States. It helps to provide insurance to boats, RVs, motorcycles, and commercial vehicles and also provides home insurance via select companies.

Progressive happens to be in an unusual corporate setting, being a growth company in a slow-growth industry. Since 2015, Progressive has massively outperformed the S&P 500. It has given a total return of almost 380% to investors compared to the broader market’s 130% return during that time.

In the first quarter, revenue increased 22.8% to $11.4 billion. Net premium growth rose 10.5% to $10.4 billion and net investment gains were $585 million compared to losses of $553 million in the corresponding period in 2020.

When inflation is high, insurance companies tend to perform better because they utilize the excess funds they have to generate investment income. Progressive has been a cash cow for a long time now, and there is no reason to believe it won’t continue to do so.

As of May 20, its shares are trading at 102 and yet they look reasonably priced at around 17 times the projected 2021 operating earnings of $5.83 per share. It is also expected that the company will earn around 20% return on equity this year, which is easily above the industry standard.

2. Citigroup (C)

Banks are not always a good investment during inflationary times. Citigroup might seem like a contrarian play on the face of it. However, it has a strong balance sheet and the stock is cheap, currently trading at 76.27 while analysts have a price target of 84.84 on it, a potential upside of over 11% and a forward dividend yield of 2.67%. You’ll easily beat inflation with Citi stock.

Citigroup is a diversified financial services holding company, and provides various financial products and services to consumers, corporations, governments, and institutions in North America, Latin America, Asia, Europe, the Middle East, and Africa.

When you compare Citi to peers like Wells Fargo, Bank of America and JPMorgan, you’ll find that it is really cheap. FYI: Warren Buffett sold Wells Fargo shares after 31 years.

Banking will take a hit when inflation goes up but you’d rather put your money into a safe, undervalued stock with the potential to beat markets rather than a stock that could swing either way. Citigroup offers a high margin of safety to its investors because of its low valuation. Companies with lower valuations tend not to suffer much during volatility. Citigroup is not one of them.

3. Chevron (CVX)

Chevron Corporation is a multinational American energy corporation. It is one of the successor companies of Standard Oil and is active in over 180 countries.

As of today, Chevron’s forward dividend yield is 5.05% and analysts say it is still 16% away from its target price of 120.2. Chevron has managed to increase its dividend annually and consecutively over a period of 25 years. Chevron’s debt to equity ratio is around 34% and that is the lowest in comparison to all its peers, as Shell’s is twice as high. Chevron’s low-debt approach ensures there’s ample room to lean on its balance sheet, when times are tough, as it did in 2020.

The company reported its numbers for the first quarter of 2021. Earnings came in at $1.4 billion compared with $3.6 billion in the first quarter of 2020. Sales and other operating revenues in first-quarter 2021 were $31 billion, compared to $30 billion in the year-ago period.

Oil prices are starting to move up as economies around the world open up. If you believe that oil still has a lot on offer, then Chevron’s wait-and-see approach makes it very attractive, along with its notably high yield and incredible dividend record.

4. Costco (COST)

Costco Wholesale Corporation is a multinational American corporation, operating a chain of membership-only big box-only retail stores. As of 2020, it was the fifth-largest retailer in the world and the world’s largest retailer of organic foods, rotisserie chicken, wine, and prime beef.

The company has a gross margin of close to 11% which saw a marginal increase in 2020 due to the disruptions from the pandemic, but otherwise it’s remained consistent. Since its stores can be accessed only with a membership fee, it stands in a decent position to combat the impact of inflation because it will simply charge members more to help keep pace with rising prices elsewhere.

The thing with Costco is that it doesn’t make money on the goods it sells. It makes money on its memberships. The first six months of Costco’s fiscal year saw it generate $2.1 billion in net profits. That’s just $400 million more than $1.7 billion that it earned in membership fees. Costco can afford to sell goods at cost because its members keep coming back to it.

As the company is known as a low-cost bulk seller, it needn’t increase prices to keep its margins intact. If inflation does run wild, it’ll simply cut back on how much it’ll offer on its lowest-margin products and protect themselves without having to pass on high sticker costs. Thus, if you’re looking for a long-term buy, whose business won’t be hampered even during inflation, there’s hardly a company better than Costco.

5. Johnson & Johnson (JNJ)

Johnson & Johnson is one of the safest healthcare companies to add to your portfolio. It develops medical devices, consumer packaged goods, and pharmaceuticals, and sells them across the world.

Its portfolio of consumer products stands at around $14 billion per year, and with the array of products on offer, it is unlikely that consumer demand will change, even if prices rise. Also, if and when inflation does occur, it will affect competitor companies too and they’re just as capable of naming their prices, as long as they don’t go too far above their competitors.

Investors needn’t worry much about its 17.95% profit margin declining. Also, J&J has a $45.6 billion portfolio of prescriptions on pharmaceutical drugs, which can be priced to whatever the market is willing to support and customers in healthcare will just pass the costs onto the insured.

Thus, having multiple business segments where it can name its price, it’s hard to figure how Johnson & Johnson might fare poorly, even in inflation, especially since the company has faced down more aggressive periods in its history.

The company has a forward yield of 2.49% and is currently trading at $171.04. Analysts have given it a target price of 187, an upside of around 10%. J&J is a rock-solid company that fights inflation.

To round it off, here’s a little gem from Warren Buffett:

“Always think of tomorrow, especially when the pace of change is picking up.”

Change is rampant now, and a combination of inflation and market volatility could easily lay waste to the best investing plans. Preparing in advance just makes logical sense. Joining an active and quality discord community is one way to keep up to speed on market movements.