In this article, we discuss the 10 best inflation-proof stocks. If you want to skip our detailed analysis of these stocks, go directly to the 5 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.
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.
“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.
“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.
“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.
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Disclosure. None. 10 Best Inflation-Proof Stocks is originally published on Insider Monkey.