In this article, we discuss 10 best stagflation stocks to buy now.
Stagflation is an economic cycle identified by slow growth, paired with high unemployment and rampant inflation. Macro policy makers find stagnation particularly hard to handle, as an attempt to rectify one of the factors can aggravate another. Moody’s defines stagflation as CPI inflation at least 1 percentage point higher than the central bank’s equilibrium target and an unemployment rate that is at least 1 percentage point ahead of the normal rate. These conditions must prevail for more than 6 to 12 months for the economy to be in a stagflation period.
Moody’s has trimmed its global economic growth forecast to 2.7% for 2022 from the earlier forecast in January, which came in at 4.2%. Moody’s warned that any policy missteps would elevate the threat of a global recession in the next 12 months. For 2023, Moody’s forecast for global growth is now down to 2.3% from the prior 3.6% estimates.
FedEx founder Fred Smith recently warned that there is a shortage of employees in the United States, paired with “high easy money-driven demand”, which is increasing the risk of stagflation. According to Smith, government support for the economy is driving up demand, but the low labor participation means that the demand will remain unmet. He explained the situation on Fox Business’ ‘Kudlow’ on September 17:
“You simply do not have the workers to meet the demand that’s been juiced by the printing of money. It’s like sitting in your car and putting your foot on the accelerator and the brake at the same time.”
After two consistent quarters of negative economic growth, the US is now in a stagflation period, the FedEx founder argued. Smith’s warning about stagflation came a week before the Federal Reserve increased the interest rate by 0.75% yet again. Attempts by the Fed to control the red-hot inflation can decidedly plunge the US into recession. Periods of economic uncertainty are weathered best by defensive sectors like gold, consumer goods, healthcare, energy, and utilities. Some of the best stagflation stocks to buy now include PepsiCo, Inc. (NASDAQ:PEP), General Mills, Inc. (NYSE:GIS), and Nutrien Ltd. (NYSE:NTR).
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Our Methodology
These stocks are selected based on their defensive nature, positive analyst coverage, strong business fundamentals, and growth potential. We have arranged the list according to the hedge fund sentiment around the securities, which was assessed from Insider Monkey’s Q2 2022 database of about 900 elite hedge funds.
Best Stagflation Stocks to Buy Now
10. Wheaton Precious Metals Corp. (NYSE:WPM)
Number of Hedge Fund Holders: 27
Wheaton Precious Metals Corp. (NYSE:WPM) was founded in 2004 and is headquartered in Vancouver, Canada. The company is a supplier of precious metals, including gold, silver, palladium, and cobalt, in Canada and internationally. The third quarterly cash dividend for 2022 of $0.15 was paid to shareholders on September 8. Wheaton Precious Metals Corp. (NYSE:WPM) delivers a dividend yield of 2.06% as of September 26. Precious metals are good investments during periods of stagflation.
On September 12, Goldman Sachs analyst Emily Chieng initiated coverage of Wheaton Precious Metals Corp. (NYSE:WPM) with a Buy rating and a C$53 price target. The company’s latest stream acquisitions will support stronger free cash flow generation, underpinning higher potential for capital returns, the analyst told investors in a research note. She added that Wheaton Precious Metals Corp. (NYSE:WPM) provides the greatest exposure to precious metals among streaming peers.
According to Insider Monkey’s database, 27 hedge funds were bullish on Wheaton Precious Metals Corp. (NYSE:WPM) at the end of Q2 2022, compared to 28 funds in the last quarter. Jean-Marie Eveillard’s First Eagle Investment Management is the largest stakeholder of the company, with 17 million shares worth $613.65 million.
In addition to PepsiCo, Inc. (NASDAQ:PEP), General Mills, Inc. (NYSE:GIS), and Nutrien Ltd. (NYSE:NTR), Wheaton Precious Metals Corp. (NYSE:WPM) is one of the best stagflation stocks to buy now.
9. DaVita Inc. (NYSE:DVA)
Number of Hedge Fund Holders: 28
DaVita Inc. (NYSE:DVA) is a Colorado-based company that provides kidney dialysis services for patients with chronic kidney failure. The company operates kidney dialysis centers and offers related lab services. Kidney dialysis is a procedure which cannot be delayed, which means patients will continue to get treatment, boosting stocks like DaVita Inc. (NYSE:DVA) despite the economy being plagued by stagflation. DaVita Inc. (NYSE:DVA)’s 2022 EPS guidance of $7.50-$8.50 beats the analyst consensus of $7.84 as the company outperformed the bottom line.
On August 19, UBS analyst Andrew Mok upgraded DaVita Inc. (NYSE:DVA) to Buy from Neutral with a price target of $117, up from $106. The shares provide a favorable risk/reward, which skews 2-to-1 to the upside, the analyst told investors in a research note. The analyst is confident in DaVita Inc. (NYSE:DVA)’s ability to achieve operating income growth in 2023, driven by robust visibility into cost saving initiatives. He sees 30% upside to present share levels from earnings growth alone and believes that passage of Restore Protections for Dialysis Patients Act (H.R.8594) “could catalyze a multiple re-rating later this year”.
According to Insider Monkey’s data, 28 hedge funds were bullish on DaVita Inc. (NYSE:DVA) at the end of the second quarter of 2022, compared to 35 funds in the last quarter. Warren Buffett’s Berkshire Hathaway is the leading stakeholder of the company, with 36 million shares worth about $3 billion.
8. Mid-America Apartment Communities, Inc. (NYSE:MAA)
Number of Hedge Fund Holders: 28
Mid-America Apartment Communities, Inc. (NYSE:MAA) is a real estate investment trust that owns, manages, acquires, and develops apartment communities in the Southeast, Southwest, and Mid-Atlantic regions of the United States. Despite economic downturns, tenants have to pay rent, which bodes well for companies like Mid-America Apartment Communities, Inc. (NYSE:MAA). This makes it one of the best stagflation stocks to buy now.
On September 19, Mizuho analyst Haendel St. Juste assigned a Neutral rating to Mid-America Apartment Communities, Inc. (NYSE:MAA) stock and lowered the price target to $177 from $178. The analyst raised fiscal 2022 and 2023 estimates for apartment real estate investment trusts to reflect the “resilient (though decelerating)” rent growth in early Q3 updates and better than anticipated Q2 earnings.
According to Insider Monkey’s data, 28 hedge funds were bullish on Mid-America Apartment Communities, Inc. (NYSE:MAA) at the end of June 2022, compared to 32 funds in the prior quarter. Stuart J. Zimmer’s Zimmer Partners is the largest stakeholder of the company, with 925,000 shares worth $161.57 million.
7. Sempra (NYSE:SRE)
Number of Hedge Fund Holders: 29
Sempra (NYSE:SRE) is a California-based energy-services holding company with operations in the United States and internationally. On September 8, Sempra (NYSE:SRE) declared a quarterly dividend of $1.145 per share, in line with previous. The dividend is distributable on October 15, to shareholders of the company as of the close of business on September 23. The company delivers a dividend yield of 2.91% as of September 26. It is one of the stagflation stocks to buy now, as demand for energy stocks remains high despite economic slowdowns.
Wells Fargo analyst Sarah Akers on September 15 raised the price target on Sempra (NYSE:SRE) to $189 from $184 and maintained an Overweight rating on the shares. The analyst walked away “incrementally more positive” from the company’s investor meetings as Sempra (NYSE:SRE) seems to be sharply focused on advancing Cameron 4 and Port Arthur and a settlement remains in reach in Texas.
According to Insider Monkey’s data, 29 hedge funds held stakes worth $285.3 million in Sempra (NYSE:SRE) at the end of June 2022, up from 23 funds in the prior quarter worth $209 million. Israel Englander’s Millennium Management is the biggest stakeholder of the company, with 819,727 shares worth $123.18 million.
Here is what ClearBridge Investments Large Cap Value Strategy has to say about Sempra (NYSE:SRE) in its Q1 2022 investor letter:
“Energy shortages in Europe were only intensified by the invasion. The conflict and economic sanctions against Russia have brought to the forefront EU dependence on Russian oil and natural gas. As Germany and its EU neighbors look to diversify their natural gas suppliers, some U.S. companies stand to benefit. Within the portfolio, Sempra Energy (NYSE:SRE) is well-positioned. Sempra’s previously underappreciated portfolio of infrastructure assets, with existing as well as prospective liquified natural gas (LNG) facilities, should benefit from renewed interest in U.S.-sourced LNG. The U.S. commitment to increase LNG exports to Europe over the coming years should create a favorable long-term demand environment and hopefully regulatory framework benefiting Sempra along with other natural gas and LNG suppliers. Sempra’s core utilities operations in California and Texas continue to generate solid mid- to high-single-digit earnings growth, and it enjoys additional growth opportunities from renewable natural gas (RNG), hydrogen and other renewable sources of energy.”
6. The Southern Company (NYSE:SO)
Number of Hedge Fund Holders: 29
The Southern Company (NYSE:SO) is a Georgia-based company that is involved in the generation and transmission of electricity. It operates through Gas Distribution Operations, Gas Pipeline Investments, Wholesale Gas Services, and Gas Marketing Services segments. BofA recently identified The Southern Company (NYSE:SO) as one of the companies with an above-market and safe dividend yield. The Southern Company (NYSE:SO)’s latest quarterly dividend of $0.68 per share was paid on September 6. The company delivers a dividend yield of 3.72% as of September 26.
Argus analyst Marie Ferguson on September 14 raised the price target on The Southern Company (NYSE:SO) to $87 from $83 and kept a Buy rating on the shares. The company provides strong regulated utility assets and has a presence in states with favorable population trends, the analyst told investors. She added that its new Vogtle nuclear plants will support long-term growth. The analyst further stated that as The Southern Company (NYSE:SO) retires coal-fired plants and increases its renewables portfolio, the company’s potential for growth looks “solid”.
Among the hedge funds tracked by Insider Monkey, 29 funds reported owning stakes worth $485.2 million in The Southern Company (NYSE:SO) at the end of June 2022, compared to 28 funds in the prior quarter worth $409.5 million. Jim Simons’ Renaissance Technologies is the biggest position holder in the company, with roughly 2 million shares valued at $138.7 million.
Like PepsiCo, Inc. (NASDAQ:PEP), General Mills, Inc. (NYSE:GIS), and Nutrien Ltd. (NYSE:NTR), smart investors are piling into The Southern Company (NYSE:SO) amid stagflation concerns.
5. General Mills, Inc. (NYSE:GIS)
Number of Hedge Fund Holders: 35
General Mills, Inc. (NYSE:GIS) is a Minnesota-based company that manufactures and markets branded consumer foods worldwide, offering ready-to-eat cereals, refrigerated yogurt, soup, meal kits, refrigerated and frozen dough products, dessert and baking mixes, and nutrition bars. General Mills, Inc. (NYSE:GIS) is one of the best stagflation stocks to buy now, given its defensive nature. The packaged food sector got a boost from a solid beat-and-raise earnings report from General Mills, Inc. (NYSE:GIS) on September 21. Its profit guidance stood out prominently, which included an EPS growth of 2% to 5% versus an earlier expectation for 0% to 3% growth.
On September 22, UBS analyst Cody Ross raised the price target on General Mills, Inc. (NYSE:GIS) to $82 from $79 and maintained a Neutral rating on the shares after its Q1 earnings beat and the FY23 guidance raise. The analyst believes that the “beat and raise cycle” for the company will potentially last longer.
According to Insider Monkey’s data, 35 hedge funds were bullish on General Mills, Inc. (NYSE:GIS) at the end of Q2 2022, compared to 37 funds in the preceding quarter. Jim Simons’ Renaissance Technologies is the biggest stakeholder of the company, with 4.5 million shares worth $345.2 million.
Here is what Chartwell Investment Partners has to say about General Mills, Inc. (NYSE:GIS) in its Q2 2022 investor letter:
“In the Dividend Equity accounts, the three best performers in Q2 include General Mills (NYSE:GIS, 3.2%), up 12.2%. General Mills benefitted from the combination of being in a very defensive industry as well as demonstrating solid business momentum; margins have been particularly impressive, following price increases.”
4. APA Corporation (NASDAQ:APA)
Number of Hedge Fund Holders: 36
APA Corporation (NASDAQ:APA) is a Texas-based company that explores for, develops, and produces oil and gas properties. Heading into the winter, energy stocks like APA Corporation (NASDAQ:APA) will potentially continue to benefit despite a stagflationary economic backdrop. On September 14, APA Corporation (NASDAQ:APA) declared a $0.25 per share quarterly dividend, a 100% increase from prior its dividend of $0.13. The dividend is payable on November 22, to shareholders of record on October 21. The board of directors also authorized an additional 40 million shares for repurchase.
On September 19, Truist analyst Neal Dingmann raised the price target on APA Corporation (NASDAQ:APA) to $75 from $66 and reaffirmed a Buy rating on the shares. The stock’s outperformance is anticipated to continue as the company’s diversified operations generate robust free cash flows, as per the analyst. The analyst added that APA Corporation (NASDAQ:APA)’s operational and financial confidence is attested by the latest increase to its dividend along with an elevated share buyback program, with cash flows reaching levels that support a higher floor for management’s 60% payout formula.
Among the hedge funds tracked by Insider Monkey, 36 funds were long APA Corporation (NASDAQ:APA) at the end of June 2022, compared to 46 funds in the earlier quarter. Harris Associates is the leading position holder in the company, with 16.7 million shares worth about $582 million.
Here is what Oakmark Select Fund has to say about APA Corporation (NASDAQ:APA) in its Q1 2022 investor letter:
“Our oil holding, APA Corporation (NASDAQ:APA) (+54%) was one of our top contributors in the quarter as oil prices rallied due to tight supplies, which were then exacerbated by the Russian invasion of Ukraine. Although their share prices have increased considerably, both companies still look quite undervalued even using longer term oil prices in the $65-70 dollar range. Meanwhile, if times are good over the next couple of years, we expect these companies to return significant percentages of their market caps to shareholders.”
3. Teck Resources Limited (NYSE:TECK)
Number of Hedge Fund Holders: 46
Teck Resources Limited (NYSE:TECK) was founded in 1913 and is headquartered in Vancouver, Canada. The company acquires, develops, and produces natural resources in Asia, Europe, and North America. It operates through Steelmaking Coal, Copper, Zinc, and Energy segments. Commodities are safe investments amid economic slowdowns, which makes Teck Resources Limited (NYSE:TECK) one of the best stagflation stocks to buy now.
BMO Capital analyst Jackie Przybylowski on September 22 maintained an Outperform rating on Teck Resources Limited (NYSE:TECK) but lowered the price target on the shares to C$48 from C$50.
According to Insider Monkey’s data, 46 hedge funds held stakes worth over $2 billion in Teck Resources Limited (NYSE:TECK) at the end of Q2 2022, compared to 56 funds in the earlier quarter worth $2.6 billion. Eric W. Mandelblatt’s Soroban Capital Partners is the leading stakeholder of the company, with 13.6 million shares valued at over $416 million.
2. Nutrien Ltd. (NYSE:NTR)
Number of Hedge Fund Holders: 48
Nutrien Ltd. (NYSE:NTR) is a Canadian provider of crop inputs and services. The company offers potash, nitrogen, phosphate, and sulfate products, as well as crop nutrients, crop protection products, and seeds. Agriculture stocks are safe investments despite economic downturns, owing to their defensive nature.
Barclays analyst Benjamin Theurer on August 10 reiterated an Overweight rating on Nutrien Ltd. (NYSE:NTR) but lowered the price target on the stock to $105 from $126. The company reduced nitrogen guidance significantly this quarter, noted the analyst, who remains confident in Nutrien Ltd. (NYSE:NTR)’s retail business given its “strong 2022 performance and customer retention”.
Among the hedge funds tracked by Insider Monkey, 48 funds were bullish on Nutrien Ltd. (NYSE:NTR) at the end of June 2022, compared to 60 funds in the prior quarter. Jean-Marie Eveillard’s First Eagle Investment Management is the largest stakeholder of the company, with 8.4 million shares worth over $668 million.
Here is what Miller/Howard Investments had to say about Nutrien Ltd. (NYSE:NTR) in its Q1 2021 investor letter:
“For the most part, performance of the stocks within the Income-Equity Strategies was skewed towards the high-performing market sectors with two exceptions – our consumer discretionary and technology stocks both did better than their broad market peers… We bought Nutrien (NTR), a producer of fertilizer, which we believe should benefit from increasing crop prices.”
1. PepsiCo, Inc. (NASDAQ:PEP)
Number of Hedge Fund Holders: 65
PepsiCo, Inc. (NASDAQ:PEP), a multinational beverages and convenient foods company, is one of the best stagflation stocks to buy now. As of September 20, in the last twelve months, PepsiCo, Inc. (NASDAQ:PEP) has recorded a revenue CAGR of 6.82% and a net income CAGR of 8.08%.
On August 22, Morgan Stanley analyst Dara Mohsenian told investors that he sees a clear top-line upside at PepsiCo, Inc. (NASDAQ:PEP), driven incrementally by accelerating U.S. scanner data quarter-to-date, compared to decelerating forward consensus estimates. This should result in EPS upside and continued stock outperformance. The analyst maintained an Overweight rating on PepsiCo, Inc. (NASDAQ:PEP).
Among the hedge funds tracked by Insider Monkey, 65 funds reported owning stakes in PepsiCo, Inc. (NASDAQ:PEP) at the end of June 2022, compared to 62 funds in the earlier quarter. Terry Smith’s Fundsmith LLP is the leading stakeholder of the company, with over 7 million shares valued at $1.2 billion.
Here is what ClearBridge Large Cap Value ESG Fund has to say about PepsiCo, Inc. (NYSE:PEP) in its Q2 2022 investor letter:
“Also in the stable and predictable cash flow camp, though with a very different business model, global food and beverage company PepsiCo (NYSE:PEP) reported very strong organic growth in the first quarter, driven by healthy price/mix, and raised revenue guidance, while holding EPS guidance. Notably, its beverage business showed expanding margins.”
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Disclosure: None. 10 Best Stagflation Stocks to Buy Now is originally published on Insider Monkey.
