Yamana Gold Inc. (USA) (NYSE:AUY) is my next favorite pick – for reasons similar to those with ExxonMobil. Yamana Gold has the capacity to raise profits in real terms even in an inflationary environment. In addition to this, their core product becomes more sought after when inflation does present itself.
With reasonable financial metrics, including a forward PE of just 10 and very little debt, I don’t believe Yamana to be overvalued. Currently the 5 year forward PEG Ratio is 1.28, indicating slightly overvalued status. However, if inflation is to accelerate, the PEG ratio would likely shrink rather quickly as the price of gold escalates.
Yamana Gold presents a great opportunity to position myself for an inflation-driven bull market. Just with ExxonMobil, Yamana Gold is in the enviable position of being able to rapidly expand with inflation. With inflation increasing, gold prices appreciate, which can mean ‘fringe’ projects that were marginal can quite quickly become viable and profitable with higher gold prices.
Merck & Co., Inc. (NYSE:MRK) is my next favorite stock for an inflation-driven bull market. The big pharma company has serious clout when it comes to commanding market positioning and competitive advantages. Combined with a divided of 4%, it provides a larger income stream than treasuries, yet it is arguably safer. Merck derives its income from the sale of pharmaceuticals–hardly an industry that is about to disappear given the chronically ill health of the US population.
Compared to bonds, which are virtually priced to perfection, Merck & Co., Inc. (NYSE:MRK) seems quite cheap given the relative predictability of its earnings and dividends. With a recent pull back from $48, now at $42, it might well be a good value buy. Even just returning to $48 would be a return of some 14%. Add the 4% dividend, and this could easily be an 18% return in the next 12 months.
Whilst 18% in the next 12 month might well be nice, it is the next 3-5 years that is of more interest to me. I believe that investing in these stocks might help investors profit from an inflation-driven bull run.
Will these stocks take off tomorrow and produce excellent returns? I have no idea, but I do believe that inflation will become the theme in the medium to long term, and with that capital will flow accordingly. I feel that these 3 stocks provide an opportunity to benefit from this structural market shift.
I may be early, but I am happy to wait!
The article Invest in these Companies During an Inflation Bull Market originally appeared on Fool.com and is written by Jarrod Bailey.
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