In this article, we discuss the 10 best inflation-proof stocks.
Inflation hit a three-decade high in the United States last month as prices of consumer goods and services increased by 6.2% year-over-year, according to the latest numbers released by the US Department of Labor. Factors such as energy production deadlocks, supply chain disruptions, and a post-pandemic increase in demand have all contributed to the surge in the costs for food, gas and housing. The inflationary fears are also eroding gains in wages and jobs that had helped the economy recover from the coronavirus crisis quicker than expected.
Although the Federal Reserve has repeatedly dismissed calls to raise interest rates, terming inflation concerns “transitory”, the political ramifications of the rising prices could soon push the government into action. The stock market has reacted cautiously to the news and there hasn’t been an immediate drop in the benchmark S&P 500. However, Morgan Stanley predicts that the index could decline by as much as 20% in the coming months if things do not change. Investors are scrambling to shield their growth-heavy portfolios from risk in the present scenario.
Traditional wisdom dictates that dividend-paying, stable businesses in the value sector are the best hedges against inflation, along with gold. However, the economy has changed so much in the past few years that the definition of “value stock” has also changed. Pricing power and global market reach are also factors that investors should consider before buying for a crisis. Viewed in this context, some of the top inflation-proof stocks to buy now include Apple Inc. (NASDAQ:AAPL), Adobe Inc. (NASDAQ:ADBE), and MercadoLibre, Inc. (NASDAQ:MELI), among others discussed in detail below.
Our Methodology
These were picked based on business fundamentals and analyst ratings. Hedge fund sentiment was also included as a classifier. Companies that have pricing power in addition to stable revenues were preferred for the list.
The hedge fund sentiment around each stock was calculated using the data of 873 hedge funds tracked by Insider Monkey.
Why pay attention to hedge fund holdings? Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 86 percentage points since March 2017. Between March 2017 and July 2021 our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the SPY. Our stock picks outperformed the market by more than 86 percentage points (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Best Inflation-Proof Stocks
10. Federal Realty Investment Trust (NYSE:FRT)
Number of Hedge Fund Holders: 16
Federal Realty Investment Trust (NYSE:FRT) is a real estate investment trust that invests in high-quality retail properties. Amid inflationary tailwinds, the mergers and acquisition transaction volume of real estate investment trusts in 2021 has hit $108 billion, prompting several analyst upgrades in the sector. The real estate market has outperformed the S&P 500 so far this year and the trend looks to continue into the new year.
Federal Realty Investment Trust (NYSE:FRT) is one of many real estate firms with robust earnings and growth. Deutsche Bank analyst Derek Johnston recently raised the price target on the stock to $140 from $129 and kept a Buy rating.
Among the hedge funds being tracked by Insider Monkey, Boston-based investment firm AEW Capital Management is a leading shareholder in Federal Realty Investment Trust (NYSE:FRT) with 374,347 shares worth more than $43 million.
Just like Apple Inc. (NASDAQ:AAPL), Adobe Inc. (NASDAQ:ADBE), and MercadoLibre, Inc. (NASDAQ:MELI), Federal Realty Investment Trust (NYSE:FRT) is one of the stocks attracting the attention of hedge funds.
9. The Trade Desk, Inc. (NASDAQ:TTD)
Number of Hedge Fund Holders: 25
The Trade Desk, Inc. (NASDAQ:TTD) is a technology company that operates a cloud-based digital advertising platform. In the past twelve months, the spending on digital advertising has skyrocketed, with companies that operate in the domain, like Google and Trade Desk, reporting record revenues and trading at all-time highs. Justin Smith, the CEO of Bloomberg Media, recently said during an interview that it was unlike anything he had seen in his career.
On November 9, RBC Capital analyst Matthew Swanson raised the price target on The Trade Desk, Inc. (NASDAQ:TTD) stock to $105 from $98 and kept an Outperform rating, underlining the international growth of the firm in a bullish investor note.
At the end of the second quarter of 2021, 25 hedge funds in the database of Insider Monkey held stakes worth $719 million in The Trade Desk, Inc. (NASDAQ:TTD), down from 35 in the preceding quarter worth $812 million.
In its Q2 2021 investor letter, Richie Capital Group, an asset management firm, highlighted a few stocks and The Trade Desk, Inc. (NASDAQ:TTD) was one of them. Here is what the fund said:
“The Trade Desk (TTD – up 26.3%) – Shares in the programmatic advertising specialist rebounded during the quarter after selling off in Q1. The selloff was part of the previously mentioned market move away from higher priced technology names. The rebound in Q2 was due to Google delaying its phase out of third-party cookies in its Chrome browser to mid to late 2023. This is positive news, but TTD is prepared for the inevitable transition away from cookies. The company has built an industry alternative called UID 2.0 which asks users’ permission to receive targeted ads on websites.
UID 2.0 has gained more traction in the digital ad industry vs competing alternatives with many major publishers and advertisers on board. Additionally, TTD’s business is diversified across numerous channels including video, audio, in-app, native and social. Connected TV is currently their fastest growing business, and cookies are meaningless on that platform as ads are based on first-party data.”
8. EPAM Systems, Inc. (NYSE:EPAM)
Number of Hedge Fund Holders: 33
EPAM Systems, Inc. (NYSE:EPAM) provides digital platform engineering and software development services. The firm recently announced that it had acquired Emakina, a digital agency with a strong international presence. In early November, EPAM had beaten market estimates on earnings and raised full-year guidance. As spending on IT services grows, the presence of EPAM in developing markets will especially help it drive revenue growth.
In August, investment advisory Jefferies upgraded EPAM Systems, Inc. (NYSE:EPAM) stock to Buy from Hold and raised the price target to $670 from $455.
Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Millennium Management is a leading shareholder in EPAM Systems, Inc. (NYSE:EPAM) with 248,610 shares worth more than $127 million.
Harding Loevner, in its Q2 2021 investor letter, mentioned EPAM Systems, Inc. (NYSE:EPAM). Here is what the fund has to say in its letter:
“By sector, good stocks in Information Technology (IT) and Consumer Staples were large positive contributors, offset by weaker results in Financials and Consumer Discretionary. EPAM, the Eastern European-centered (but US-Listed) software engineering company, continued to benefit from the acceleration in demand for digital transformation projects and customers’ consolidation of their technology service providers.”
7. Aptiv PLC (NYSE:APTV)
Number of Hedge Fund Holders: 40
Aptiv PLC (NYSE: APTV) makes and sells vehicle components. The company has a growing portfolio of products dedicated to electric vehicles and is likely to take advantage of the pricing power it possesses in this regard during an inflationary scenario. It has solid fundamentals, recently beating market expectations on earnings despite a production lull in vehicle production due to chip shortages.
Raymond James analyst Brian Gesuale recently maintained an Outperform rating on Aptiv PLC (NYSE: APTV) stock and raised the price target to $215 from $200, noting the firm was well positioned to benefit from rebounding auto production.
Among the hedge funds being tracked by Insider Monkey, London-based investment firm Impax Asset Management is a leading shareholder in Aptiv PLC (NYSE: APTV) with 3.2 million shares worth more than $518 million.
In its Q1 2021 investor letter, Oakmark Funds, an asset management firm, highlighted a few stocks and Aptiv PLC (NYSE:APTV) was one of them. Here is what the fund said:
“Aptiv approached our estimates of intrinsic value and was, therefore, eliminated during the period. The company was longstanding investment of the Fund and produced successful outcomes. We continue to believe that Aptiv is a well-positioned auto supplier that is likely to continue outgrowing light vehicle production for the foreseeable future, but this dynamic is now more fully appreciated by the market.”
6. Stanley Black & Decker, Inc. (NYSE:SWK)
Number of Hedge Fund Holders: 44
Stanley Black & Decker, Inc. (NYSE:SWK) is a diversified industrial firm. It has an impressive dividend history stretching back decades and solid earnings growth. On October 20, it declared a quarterly dividend of $0.79 per share, in line with previous. The forward yield was 1.68%. The firm has been investing strong earnings into acquisitions, recently announcing the purchase of Excel Industries and MTD Holdings for $375 million and $1.6 billion respectively.
Stanley Black & Decker, Inc. (NYSE:SWK) has also embarked on a plan to reduce carbon emissions, recently partnering up with Eastman, a chemical firm, to develop sustainable products for the power tools industry.
Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Pzena Investment Management is a leading shareholder in Stanley Black & Decker, Inc. (NYSE:SWK) with 1 million shares worth more than $211 million.
In addition to Apple Inc. (NASDAQ:AAPL), Adobe Inc. (NASDAQ:ADBE), and MercadoLibre, Inc. (NASDAQ:MELI), Stanley Black & Decker, Inc. (NYSE:SWK) is one of the stocks on the radar of institutional investors.
5. Altria Group, Inc. (NYSE:MO)
Number of Hedge Fund Holders: 47
Altria Group, Inc. (NYSE:MO) is a tobacco company. The stock has benefited from the pandemic as cigarette sales registered a nominal increase for the first time in 20 twenty years, according to an FTC report on the industry. However, it has dipped recently after reports that Philip Morris, a Swiss-American tobacco firm, would be merging with Altria were quashed by Jacek Olczak, the CEO of the latter, in a media interview published on November 9.
Jefferies analyst Owen Bennett has a Buy rating on Altria Group, Inc. (NYSE:MO) stock with a price target of $55. In an investor note penned in October, the analyst argued that a move for Juul, an electronic cigarette firm, appeared “likely and necessary” for Altria in the near future.
At the end of the second quarter of 2021, 47 hedge funds in the database of Insider Monkey held stakes worth $948 million in Altria Group, Inc. (NYSE:MO), up from 38 in the previous quarter worth $1.1 billion.
In its Q2 2021 investor letter, Broyhill Asset Management, an asset management firm, highlighted a few stocks and Altria Group, Inc. (NYSE:MO) was one of them. Here is what the fund said:
“Altria (MO) shook off the prospects of a ban on menthol and a potential cap on nicotine and gained 20%. We shared our thoughts on these regulations during the quarter, which are available here.
MO Valuation. MO is up ~ 18% YTD (even accounting for the recent sell-off). We expect MO to generate close to $5 in annual FCF per share over the next few years, putting the stock at ~ 10x, which is less than half the market’s multiple today. Over the last decade, shares have traded at an average multiple of 15x and within a range of ~ 10x – 20x (+/-1 standard deviation). The stock yields 7.2% at the current price, close to a 6% premium to treasuries. Historically, shares have traded closer to a 3% premium to the 10Y, which would imply a ~ $75 share price.”
4. Newmont Corporation (NYSE:NEM)
Number of Hedge Fund Holders: 55
Newmont Corporation (NYSE:NEM) is a mining firm with core interests in gold. During times of inflation, mining and gold stocks tend to benefit the most as people run to the metal as a savings vehicle. Newmont is one of the most stable and well-known companies in this realm. It recently declared a quarterly dividend of $0.55 per share, in line with previous. The forward yield was 3.8%.
On September 24, KeyBanc analyst Adam Josephson initiated coverage of Newmont Corporation (NYSE:NEM) stock with a Sector Weight rating, noting the leverage the firm had on a long-term gold bull market.
At the end of the second quarter of 2021, 55 hedge funds in the database of Insider Monkey held stakes worth $1.2 billion in Newmont Corporation (NYSE:NEM), up from 43 in the preceding quarter worth $994 million.
In its Q1 2020 investor letter, First Eagle Investment Management, an asset management firm, highlighted a few stocks and Newmont Corporation (NYSE:NEM) was one of them. Here is what the fund said:
“The gold price helped support the stock price of Newmont Corporation, a Colorado-based miner with, in our view, highquality assets located in favorable mining jurisdictions in North America, South America, Australia and Africa. With what we consider an impressive portfolio of assets, strong management team, solid balance sheet and history of generating free cash flow, Newmont appears well positioned to withstand the economic disruptions related to the coronavirus pandemic.”
3. MercadoLibre, Inc. (NASDAQ:MELI)
Number of Hedge Fund Holders: 74
MercadoLibre, Inc. (NASDAQ:MELI) is an ecommerce firm based in Argentina. It is one of the largest companies in Latin America and thus possesses incredible pricing power, an advantage that can be put to good use during times of inflation. The firm recently posted earnings for the third quarter, reporting earnings per share of $1.92, beating market estimates by $0.63. The revenue over the period was $1.8 billion, up 61% year-on-year.
Barclays analyst Trevor Young recently kept an Overweight rating on MercadoLibre, Inc. (NASDAQ:MELI) stock and raised the price target to $2,200 from $2,100, underlining that the firm was “executing on all fronts”.
At the end of the second quarter of 2021, 74 hedge funds in the database of Insider Monkey held stakes worth $4 billion in MercadoLibre, Inc. (NASDAQ:MELI), up from 69 in the previous quarter worth $5 billion.
Baron Funds, in its Q1 2021 investor letter, mentioned MercadoLibre, Inc. (NASDAQ:MELI). Here is what the fund has to say in its letter:
“MercadoLibre, Inc., a Latin American e-commerce and FinTech platform, declined in the quarter despite reporting very strong fourth quarter results. MercadoLibre falls into a category of businesses that were net beneficiaries of last year’s lockdowns and reduced consumer gatherings that fell out of favor this quarter as investors looked toward economic reopening and normalization. We are confident in MercadoLibre’s ability to create substantial long-term value as it grows into a regional powerhouse across e-commerce and financial services.”
2. Adobe Inc. (NASDAQ:ADBE)
Number of Hedge Fund Holders: 89
Although technology stocks do not usually make for good inflation hedges, there are a few exceptions. Adobe Inc. (NASDAQ:ADBE), the software firm based in California, is one such company. The suite of professional products that the company markets, many of which dominate the competition, are likely to give the company stable revenues even during an economic crisis since they remain central to the working of the digital economy.
Wells Fargo recently termed Adobe Inc. (NASDAQ:ADBE) the “crown jewel” of software firms, just before the company posted earnings results for the third quarter that smashed analyst expectations on earnings per share and revenue.
Among the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in Adobe Inc. (NASDAQ:ADBE) with 6.2 million shares worth more than $3.6 billion.
Here is what Polen Capital has to say about Adobe Inc. (NASDAQ:ADBE) in its Q1 2021 investor letter:
“Adobe and Autodesk are both prime examples of the rotation that occurred during the quarter. Both are dominant businesses in their respective markets, which are experiencing structural tailwinds. Despite each business’s position of strength, the stocks of cyclicals and businesses with higher leverage and lower profitability were more favored this past quarter. In stark contrast, Adobe and Autodesk both have low leverage, high levels of profitability, high recurring revenues that mitigate cyclicality, and are both capital-light business models—all attributes we appreciate as investors. Adobe and Autodesk were also two of the top three performers within the Portfolio during 2020.”
1. Apple Inc. (NASDAQ:AAPL)
Number of Hedge Fund Holders: 138
Apple Inc. (NASDAQ:AAPL) is another technology company that makes it to our list of inflation-proof stocks. Apple is one of the most recognizable brand names in the world with incredible sales numbers and margins. Even legendary value investors like Warren Buffett have held onto the stock during times of crisis, attesting to their confidence in the company.
Apple Inc. (NASDAQ:AAPL) has been expanding into the auto sector as well, with reports that the company is planning to debut an all-electric car in 2025. Tim Cook, the CEO of the firm, recently also revealed that he owned crypto assets and was “interested” in the technology.
At the end of the second quarter of 2021, 138 hedge funds in the database of Insider Monkey held stakes worth $145 billion in Apple Inc. (NASDAQ:AAPL), up from 127 in the preceding quarter worth $131 billion.
In its Q1 2021 investor letter, Distillate Capital, an asset management firm, highlighted a few stocks and Apple Inc. (NASDAQ:AAPL) was one of them. Here is what the fund said:
“Apple is an even more notable situation and one that highlights our free cash valuation methodology and bears further discussion given its Q3 ‘20 sale from our strategy. For an extended period, Apple was extraordinarily inexpensive on a free cash flow basis and was the largest position in our strategy, exceeding 5% of the portfolio.”
You can also take a peek at 10 Best Micro-Cap Stocks to Invest In and Top 10 Stocks to Buy According to Charles Pollnow’s Triple Frond Partners.
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Disclosure. None. 10 Best Inflation-Proof Stocks is originally published on Insider Monkey.
