In this article, we discuss the 10 best stocks for inflation according to Redditors. If you want to skip our analysis of the overall consumer sentiment, go directly to 5 Best Stocks For Inflation According to Redditors.
The inflation rate in the US is at a four-decade high, with the consumer price index (CPI) recording an increase of 9.1% in June 2022. According to a report issued by the US Department of Labor, the CPI was 1.3% higher in June than 7.8% for May 2022. Furthermore, prices of food items observed a 10.4% YoY increase during June, reflecting the biggest rise since February 1981. The increase in prices has been across the board, ranging from food to the energy and housing segments.
The major contributor to inflation is the rising energy cost, which has observed an increase of over 41.6% since the start of the year. The percentage reflects the biggest YTD increase for energy items like electricity, fuel, gasoline, and oil. The rise in energy costs has a domino impact on the economy. The conflict between Russia and Ukraine has played a critical role in the rising energy prices.
Decline in Consumer Sentiment
According to a survey conducted by the University of Michigan, consumer sentiment is at its lowest level since the recession of 1980. The sentiment recorded a decline of 14.4% in June. The Federal Reserve and the White House are losing the trust of the financial markets and the public. Both these institutions need to give confidence to the public that inflation can be controlled through effective fiscal and monetary policies without increasing the unemployment rate or shrinking the economy.
The Federal Reserve would now be forced to show more aggression in the interest rate hike to control inflation. The policymaker has already increased benchmark interest rates thrice since the start of 2022. Central banks around the world use the interest rate as a tool to control inflation as it makes borrowing more expensive, dampens demand, and slows down the economy. However, if interest rates rise excessively, it can cause an economy to contract, resulting in a loss of jobs.
Reddit became a popular platform for investment-related discussion during the pandemic. The platform played a crucial role in the retail trading rage at the start of 2021. Although the craze has cooled down since then, the forum continues to remain popular and provides a glimpse of its power to the investment world from time to time. In the case of GameStop stock, Reddit resulted in a short squeeze so severe that the billion-dollar hedge fund, Melvin Capital, had to close out its position after incurring heavy losses. The meme stock mania has shown that the retail investors may be fragmented, but they still hold significant power over the Street if they rally together for a cause. Notable stocks such as Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT), and Advanced Micro Devices, Inc. (NASDAQ:AMD) are among the stocks attracting investment from Redditors currently.
Photo by Mohamed Hadji on Unsplash
Our Methodology
Let’s discuss the 10 best stocks for inflation, according to Redditors. These companies were selected after analyzing Reddit forums such as r/WallStreetBets, r/Stocks, and r/Investing. These forums comprise millions of members sharing insights into the stock market trends. We have also discussed the business fundamentals for each stock to understand why Redditors prefer them in inflationary times. Furthermore, the hedge fund sentiment has been used to provide readers with an idea of the popularity of these stocks amongst 912 elite funds in Insider Monkey’s database as of Q1 2022. The stocks have been ranked according to the level of hedge fund ownership.
Best Stocks For Inflation According to Redditors
10. SVB Financial Group (NASDAQ:SIVB)
Number of Hedge Fund Holders: 34
SVB Financial Group (NASDAQ:SIVB) is a Santa Clara, California-based high-tech commercial and investment bank that has funded more than 30,000 startups as of 2022.
In a note issued to investors on July 12, Manan Gosalia at Morgan Stanley gave SVB Financial Group (NASDAQ:SIVB) stock an Overweight rating with a target price of $523. The target price reflects a potential upside of around 22.5% from the closing price as of July 19. Analysts anticipate further interest rate hikes by the Federal Reserve in the coming days and strong growth in new loans that would boost the net interest income of SVB Financial Group (NASDAQ:SIVB). This trend is expected to peak by the end of this year.
Gosalia further added that SVB Financial Group (NASDAQ:SIVB) warrants a premium in valuation compared to competitors due to its unique business model and its reputation as a financial institution that has a focus on the global innovation sector and a robust long-term outlook.
SVB Financial Group (NASDAQ:SIVB) was discussed in the Q1 2022 investor letter of Diamond Hill Capital. Here’s what the firm said:
“Other bottom contributors included SVB Financial Group (NASDAQ:SIVB). Innovation-economy focused bank SVB Financial Group was doubly punished as financials traded down and the sell-off in technology raised concerns about slower growth for this niche bank in the near term.”
Diamond Hill Capital increased its stake in SVB Financial Group (NASDAQ:SIVB) by 12% during the first quarter of 2022.
9. Tapestry, Inc. (NYSE:TPR)
Number of Hedge Fund Holders: 39
Tapestry, Inc. (NYSE:TPR) is a New York-based holding company for three leading fashion brands, namely Coach, Kate Spade, and Stuart Weitzman.
In an investment note issued on July 7, Ike Boruchow at Wells Fargo gave Tapestry, Inc. (NYSE:TPR) stock an Overweight rating with a price target of $40, reflecting a potential upside of over 21% from the closing price as of July 19. In May, Ashley Helgans at Jefferies stated that Tapestry, Inc. (NYSE:TPR) has significantly improved its financial profile in the last few years due to some structural changes to the business. These changes have been led by bringing into use data and digital marketing. The analyst believes that luxury goods tend to hold up their demand during recessionary periods, and the re-entry into the Chinese market following the ease in COVID-19 lockdowns would also act as a positive catalyst for Tapestry, Inc. (NYSE:TPR).
Here’s what Ariel Investments said about Tapestry, Inc. (NYSE:TPR) in its Q3 2021 investor letter:
“Luxury accessory and lifestyle brand, Tapestry, Inc. was the top contributor to performance over the trailing one-year period. Revenue improvement across all three brands with a notable increase in consumer demand, particularly for the Coach business, triple-digit growth in e-commerce, and better than expected pricing, drove margins higher. Looking ahead, we expect Tapestry’s supply chain and SKU rationalization initiatives to continue to deliver margin expansion. Together, with early signs of improved receptivity for the Kate Spade brand, we believe a significant value creation opportunity lies ahead.”
Citadel Investment Group was the leading hedge fund holder in Tapestry, Inc. (NYSE:TPR) at the end of Q1 2022.
8. APA Corporation (NASDAQ:APA)
Number of Hedge Fund Holders: 46
APA Corporation (NASDAQ:APA) is a Houston, Texas-based holding company for crude oil and natural gas exploration and production (E&P) activities.
During an inflationary period, it is advised to invest in stocks with a focus on commodities because as the commodity prices increase, these companies see their top line and bottom line improve.
On July 20, Doug Leggate at Bank of America gave APA Corporation (NASDAQ:APA) stock a target price of $63 with a Buy rating. The target price assumes a significant potential upside of over 83% from the closing price as of July 19. Overall, analysts are looking positively at the strong cash flow outlook and the distribution structure of APA Corporation (NASDAQ:APA). Vincent Lovaglio at Mizuho also opined that companies like APA Corporation (NASDAQ:APA) are in a stable position to “withstand a period of weaker economic activity.”
Oakmark Funds shared its insights on APA Corporation (NASDAQ:APA) in its Q1 2022 investor letter. Here’s what the firm said:
“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.”
APA Corporation (NASDAQ:APA) was held by 46 hedge funds as of Q1 2022.
7. Halliburton Company (NYSE:HAL)
Number of Hedge Fund Holders: 47
Halliburton Company (NYSE:HAL) is a Houston, Texas-based oilfield equipment and services company.
The company posted its Q2 2022 results on July 19. Halliburton Company (NYSE:HAL) recorded an increase of 41% in adjusted profit on a sequential basis as price levels increased across the board. The company reported positive results despite taking a hit of $344 million due to shutting down its operations in Russia.
Furthermore, crude oil prices in Q2 were 53% higher than the same period last year and 6% higher from Q1 2022. CEO Jeff Miller sees E&P spending from international players recovering well and on its way to mid-teens percentage growth. Miller stated that Halliburton Company’s (NYSE:HAL) strategic geographic location and advanced technology portfolio would allow the firm to benefit from high international growth. He sees Halliburton Company (NYSE:HAL) as the leading company in patent grants.
The hedge funds are also bullish on Halliburton Company (NYSE:HAL). At the end of Q1 2022, 47 elite funds held a stake in the company, up from 43 in the previous quarter.
6. Alcoa Corporation (NYSE:AA)
Number of Hedge Fund Holders: 50
Alcoa Corporation (NYSE:AA) is a Pittsburgh, Pennsylvania-based aluminum manufacturer with a presence across 10 countries. It is the eighth largest aluminum manufacturing entity in the world.
On July 19, Curt Woodworth at Credit Suisse gave Alcoa Corporation (NYSE:AA) a target price of $63 with a Neutral rating. The target price reflects an adjustment to recent announcements. Alcoa Corporation (NYSE:AA) has taken actions to significantly improve its balance sheet and bottom line by reviewing its asset portfolio.
Alcoa Corporation (NYSE:AA) has consistently surpassed EPS forecasts in the last 2 years and the revenue estimates have been outperformed by the company 88% of the time. For Q2 2022, analysts expect Alcoa Corporation (NYSE:AA) to post EPS at $2.63, reflecting a 76.5% YoY increase. Revenue has been forecasted at $3.48 billion, reflecting a 23% YoY increase. Alcoa Corporation (NYSE:AA) is expected to benefit from the favorable prices in the aluminum sector and an increased number of shipments.
Soroban Capital Partners increased its investment in Alcoa Corporation (NYSE:AA) by 26% in Q1 2022.
Besides Alcoa Corporation (NYSE:AA), stocks such as Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT), and Advanced Micro Devices, Inc. (NASDAQ:AMD) are also on our list of the 10 best stocks for inflation according to Redditors.
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Disclose. None. 10 Best Stocks For Inflation According to Redditors is originally published on Insider Monkey.
