10 Best Cyclical Stocks for Inflation

Published July 19, 2022 at 10:33 am EDT Updated September 7, 2026 at 11:34 am EDT

In this article, we discuss 10 best cyclical stocks for inflation.

Cyclical Stocks

Cyclical stocks depend on the cycles of economic expansion and recession, which means they are expected to perform better during the economic expansion. During times of recession, a cyclical stock can lose its worth. However, they have a more significant growth potential during periods of expanding economy. Cyclical industries include restaurants, hotel chains, oil companies, airlines, furniture, high-end clothing retailers, and automobile manufacturers, among others.

40-year High Inflation in 2022

The world experienced a pandemic-induced recession in 2020. However, the world seemed to be on the road to recovery in 2021. In 2022, inflation reached a 40-year high of 7.9% in the United States by February. Further in May, the Consumer Price Index increased to 8.6% before seasonal adjustment. All items except for the food and energy index rose by 6.0% in May. The food and energy index rose by 1.2% and 4.1%, respectively. On top of that, according to Bloomberg, shelter inflation is expected to rise to 7.4% by September 2022.

One of the primary reasons for the current inflation is the Russia-Ukraine war that started in February 2022. The global oil prices hit their 14-year high of $130 WTI, and the price of food commodities also soared.

These price hikes can benefit some stocks because the cyclical business model allows the companies to transfer their costs to their consumer base. Exxon Mobil Corporation (NYSE:XOM), Pioneer Natural Resources Company (NYSE:PXD), and KLA Corporation (NASDAQ:KLAC) are some companies that are set to benefit from the current economic condition.

Our Methodology

After a careful assessment of companies with cyclical business models, we have made a list of 10 companies that are most likely to benefit from the current inflation period. The companies were chosen according to the analyst ratings, expansion prospects, and financials, including cash flows, debt position, and dividend history.

The hedge fund sentiment was taken from the list of 912 hedge funds tracked by Insider Monkey at the end of Q1 2022.

3d Pictures/Shutterstock.com

Best Cyclical Stocks for Inflation

10. EPR Properties (NYSE:EPR)

Number of Fund Holders: 25

EPR Properties (NYSE:EPR) is an American REIT that invests in entertainment properties such as amusement parks, movie theatres, and ski resorts. As of 2022, the company has more than 350 properties, 94% of which are experiential. Being a “triple net” REIT, EPR Properties doesn’t have the burden of operating costs such as property taxes, insurance, and maintenance. These costs fall upon the tenants.

Despite the macroeconomic conditions, EPR Properties is going through with its expansion plans. As of March 2022, the company had $323.8 million in cash and $1.0 billion through an unsecured revolving credit facility, some of which was used to acquire two new experiential properties in Canada for a combined value of $142 million. The properties include Vacances Valcartier Resort Quebec and the Calypso Waterpark in Ottawa. The company plans to lease the properties to Premier Park Ltd in a long-term, triple net lease.

EPR Properties has an attractive dividend yield of about 6.5% as of July 19. Moreover, the dividend is paid monthly instead of quarterly. Its latest monthly dividend of $0.275 was paid out on July 15 to the shareholders of record on June 29.

In the first quarter of 2022, Millennium Management increased its holdings in EPR Properties by 7% and was the largest shareholder in the company with a stake of $42.59 million. In the same quarter, 25 hedge funds had bullish positions in the company compared to 22 funds in Q4 2021.

EPR Properties, along with Exxon Mobil Corporation, Pioneer Natural Resources Company, and KLA Corporation, are some of the best cyclical stocks for inflation.

9. Vale S.A. (NYSE:VALE)

Number of Hedge Fund Holders: 27

Vale S.A. (NYSE:VALE) is a Brazilian minerals and mining company. With the downward spiral in the iron and copper industries, the company is holding its ground regarding shareholder returns. During Q1 2022, Vale S.A. paid out $3.5 billion in dividends and made share repurchases worth $1.8 billion. The dividend yield was approximately 4.1% and with 2.1% in buybacks, the returns sum up to more than 6%.

On May 6, Vale S.A. made a long-term deal with Tesla, Inc. (NASDAQ:TSLA) to supply low-carbon nickel. This deal will solidify the company’s position in the growing EV industry. Moreover, on June 9, the company announced that it had completed its studies to potentially initiate nickel sulfate operations in Canada. The expected capacity per annum is around 25,000 tonnes. In addition, Vale S.A. plans to make a capital expenditure of $5.8 billion in 2022, including the Serra Sul project, which is expected to add 20 million tonnes per year to the S11D mine’s 90 million tonnes capacity. The company is also looking forward to cutting costs by investing in solar energy projects such as the Sol do Cerrado project.

On June 7, Jefferies analyst Christopher LaFemina raised Vale S.A.’s price target from $17 to $24 and upgraded the company shares to Buy from Hold. According to the analyst, the industry is undervalued and will likely outperform when China recovers.

Here is what Grantham Mayo Van Otterloo & Co. LLC had to say about Vale S.A. in its first-quarter 2022 investor letter:

“Let’s look at Vale, the world’s largest iron ore producer, as a case study for how shareholders can be rewarded. Vale’s stock price is about where it was at the beginning of last year. Despite the market’s lack of enthusiasm, the company generated about $20 billion of free cash flow last year. Not bad for a company with a market cap of a little over $100 billion and no substantive debt as of the end of March. 4 What did the company do with all that cash? Last year, Vale paid out about $9 billion in regularly scheduled dividends and distributed another $10 billion between extra dividends and share repurchases. Combined with dividends distributed in the first quarter of this year and a recently announced share repurchase, Vale has returned or announced the return of over $33 billion since the beginning of last year, almost a 32% yield relative to the market cap of the company. Not a bad way to win.”

8. A. O. Smith Corporation (NYSE:AOS)

Number of Hedge Fund Holders: 38

A. O. Smith Corporation (NYSE:AOS) is an American company that manufactures commercial and residential water heaters and boilers. Moreover, the company also offers water treatment products in the Asian markets, including India and China.

A. O. Smith Corporation has a dividend yield of 2% and has an active share buyback program. The company repurchased shares worth $107.9 million in the first quarter of 2022 alone. Moreover, A. O. Smith Corporation plans to make share repurchases of close to $400 million by the end of 2022. It is a decent amount keeping in mind that it is a midcap company with a market capitalization of around $9 billion. The PE ratio of the company is 17.62, which makes it reasonably valued. The latest quarterly dividend of $0.28 was declared on April 11 and paid out on May 16 to the shareholders of record as of April 28.

According to our database, 38 hedge funds were bullish on A. O. Smith Corporation in the first quarter of 2022 compared to 28 in the previous quarter, showing a positive sentiment towards the company.

7. Hess Corporation (NYSE:HES)

Number of Hedge Fund Holders: 40

Hess Corporation (NYSE:HES) is an American midstream oil and gas company. The company has exploration and production operations in the USA, Libya, parts of South America, and Southeast Asia. According to the Insider Monkey database, 40 hedge funds had a stake worth $1.43 billion in the company in the first quarter of 2022, compared to 36 in the previous quarter, valued at $869.1 billion. In Q1 2022, Fisher Asset Management held the most significant stake with 4.2 million shares worth $449.69 million.

As of July 19, Hess Corporation stock was up by 32.5% YTD. The company had healthy Q1 2022 results by exceeding the EPS estimates of $1.13 after posting an EPS of $1.30. Furthermore, the company recorded a revenue of $2.37 billion compared to the estimates of $2.01 billion. As of March 31, Hess Corporation had $1.4 billion in cash and $2.4 billion in near-term debt maturities. In addition, the cash flow from operations is expected to grow by 25% CAGR from 2022 to 2026. Lastly, Hess Corporation has pledged to return up to 75% of its annual adjusted cash flow through dividends and share repurchases.

On June 13, Barclays analyst Jeanine Wai raised Hess Corporation’s price target from $131 to $153 and maintained an Overweight rating on the company shares. The analyst believes the oil and gas stocks will remain profitable after Barclays updated the oil price forecast by $11 and $23 higher for 2022 and 2023, respectively.

6. Suncor Energy Inc. (NYSE:SU)

Number of Hedge Fund holders: 41

Suncor Energy Inc. (NYSE:SU) produces synthetic crude oil from Canada’s oil sands, the world’s largest crude oil deposit. The oil sand reserves are expected to last for 28 more years. In the coming year, the company plans to pay out approximately $2.1 billion in dividends, and it has $6 billion of free cash flow.

Suncor Energy Inc. is making phenomenal returns to its investors in 2022. As of July 19, the stock is up by 22% YTD. Moreover, near the end of 2021, the company announced a 100% dividend raise and a robust share repurchase program. Furthermore, the company reduced its net debt from $18 billion in 2019 to $14 billion in 2021. In the first quarter of 2022, the net debt was further reduced by $730 million. According to CEO Mark Little, the company will direct all the free cash flow to shareholder returns once the net debt goes down to $9 billion.

On June 16, National Bank analyst Travis Wood raised his price target on Suncor Energy Inc. to $73 from $54 while maintaining a Sector Perform rating.

Suncor Energy Inc. is a significant part of our list of cyclical stocks for inflation. Other prominent names include Exxon Mobil Corporation, Pioneer Natural Resources Company, and KLA Corporation.

ClearBridge Investments mentioned Suncor Energy Inc. in its Q1 2022 investor letter. Here is what the firm said:

“Also within the structural bucket, we added to our commodity exposure with the purchase of Suncor Energy. Suncor, a past holding, is a Canadian integrated oil company where we capitalized on attractive valuation due to a COVID-19-induced slowdown. We expect recovery in oil demand and strong pricing will result in faster than expected free cash flow growth and financial deleveraging.

The structural bucket has the shortest investment horizon across the spectrum of growth companies we target in the Strategy. We closely monitor the macro impacts and turnaround progress of these companies and will be disciplined sellers when the thesis for a holding plays out.”

5. Marathon Oil Corporation (NYSE:MRO)

Number of Hedge Fund Holders: 43

Marathon Oil Corporation (NYSE:MRO) is an American oil and gas company headquartered in Houston, Texas. Oil companies might be susceptible to market volatility. However, 79% of the total energy is derived from fossil fuels in the US and more in emerging markets. Furthermore, the free cash flow breakeven of the company is at $35 WTI, while currently, crude oil is trading at nearly $110 WTI.

Marathon Oil Corporation’s cash distribution to its shareholders is subjected to its cash flows. The company has pledged to return a minimum of 40% of its total cash flow to investors. According to the company’s Q1 financial reports, Marathon Oil Corporation has returned 80% of its free cash flow to investors through dividends and share repurchases. At the time of writing, the company has a 1.46% dividend yield and an annual dividend rate of $0.32 per share.

On June 14, Barclays analyst Jeanine Wai raised the price of oil and gas exploration companies by an average of 18%. The analyst maintained an Overweight rating on Marathon Oil Corporation shares after raising the price target to $37 from $30.

Here is what Carillon Tower Advisers had to say about Marathon Oil Corporation n its Q1 2022 investor letter:

“Stock selection contributed the most while sector allocation was also positive. An underweight to communication services and an overweight to energy helped performance, while an underweight to consumer staples and an overweight to materials detracted. Stock selection was strong within healthcare and materials but was weak within information technology and industrials. Marathon Oil increased its quarterly dividend and executed an impressive share buyback that blew by the target it originally announced.”

4. Ulta Beauty, Inc. (NASDAQ:ULTA)

Number of Hedge Fund Holders: 48

Ulta Beauty, Inc. (NASDAQ:ULTA) is a US-based retailer of beauty products. The specialty retail industry is highly cyclical. However, the company has the power to pass on its rising costs due to inflation to its customers. Brand loyalty is another factor that helps Ulta Beauty, Inc. curb current inflation effects. The Ultamate Rewards Loyalty Program has over 37 million members, responsible for 95% of the company’s total sales.

According to our database, 48 hedge funds were bullish on Ulta Beauty, Inc. in Q1 2022, while the number was down at 37 in the previous quarter. Arrowstreet Capital was the largest shareholder in the company in Q1 of 2022, with 503,580 shares worth $200.5 million.

On June 29, Raymond James analyst Olivia Tong raised her price target on Ulta Beauty, Inc. to $485 from $475 and upgraded the company shares to a Strong Buy rating from Outperform. The analyst believes that the company is “particularly well-positioned” in the current inflationary situation as 40% of Ulta Beauty, Inc.’s loyal customer base has a household income of more than $100,000. She added that the company is well-positioned if the economy falls into a recession.

Here is what ClearBridge investments had to say about Ulta Beauty, Inc. in its Q4 2021 investor letter:

“Several encouraging macro trends are emerging in support of two areas outside tech: consumer spending and industrial production. Unlike in past recessions and recoveries, consumer balance sheets have actually improved dramatically since the onset of the pandemic. This should feed through to increased spending on discretionary items offered by retailers like Ulta Beauty. We expect the supply chain constraints contributing to inflation and goods shortages will begin to lessen with an ambitious rebuilding of inventories.”

3. KLA Corporation (NASDAQ:KLAC)

Number of Hedge Fund Holders: 52

KLA Corporation is a California-based Semiconductor Equipment & Materials company that provides process control and yield management systems to semiconductor and nanotechnology companies. Our database shows that 52 hedge funds had stakes in the company in the first quarter of 2022. Alkeon Capital Management held the highest stake. Moreover, the second most significant shareholder, D E Shaw, increased its holding in the company by a staggering 481% in the same quarter.

Despite the downward trend in the semiconductor market, KLA Corporation remains on our list due to its free cash flow returns, high profitability in the semiconductor equipment industry, and a strong balance sheet with healthy fiscal reports. The FQ3 2022 reports of the company recorded a 27% YoY revenue growth to $2.29 billion compared to the $2.20 billion estimates. Furthermore, KLA Corporation’s revenue has grown at a compound annual growth rate of 12% since 2012. The company also surpassed its EPS estimates of $4.82 by 6.33%.

Vltava Fund discussed KLA Corporation in its first-quarter 2022 investor letter. Here is what the fund said:

“We then used the money freed up to, among other things, open three new positions. The stock price declines during the Russian invasion brought a lot of good prices to the market. Out of all the possibilities we considered, we picked the stock of KLA Corporation (KLAC).

KLA Corporation develops leading-edge equipment and services that enable innovation throughout the electronics industry. It specialises in process management and control in semiconductor manufacturing and the related nanoelectronics industries. During manufacturing processes, products must be inspected for defects and correct critical dimensions in order to identify and eliminate possible sources of problems. As customers continue to enforce Moore’s Law, smaller chips must meet more precise specifications, which in turn increases the need for advanced inspection and diagnostic tools. This is a key step within the entire manufacturing process and one in which the company has built a very strong, and in places dominant, global position. We have been watching and waiting for an opportunity to acquire this stock for some time already, and this year’s drop in its price finally prompted us to buy.”

2. Pioneer Natural Resources Company (NYSE:PXD)

Number of Hedge Fund Holders: 54

Pioneer Natural Resources Company is a Texas-based hydrocarbon exploration company. The company operates in Cline Shale in the Permian Basin. On June 14, Barclays analyst Jeanine Wai maintained an Overweight rating on Pioneer Natural Resources Company’s shares after raising the price target to $339 from $302.

Pioneer Natural Resources Company’s share repurchase program was worth $250 million in the first quarter of 2022. The annualized sum shows a 1.8% return through buybacks. Furthermore, a special quarterly dividend of $7.38 was declared on May 4, with $0.78 as a base dividend and $6.60 as a variable. The dividend was paid out on June 14, 2022. The combined dividend amount of $1.9 billion shows that the company returned 83% of its free cash flow to its shareholders. In conclusion, the share buyback program and dividends drive the total shareholder yield close to 15%, one of the highest in the S&P 500 index.

Among the hedge funds tracked by Insider Monkey, 54 hedge funds were bullish on Pioneer Natural Resources Company, compared to 43 in the previous quarter. Abrams Bison Investments was the most significant stakeholder in Q1 2022, with a total stake value of $149.5 million. The firm had also increased its holdings in the company by 12.67% in Q1 2022.

Here is what ClearBridge Investments had to say about Pioneer Natural Resources Company in its first-quarter 2022 investor letter:

“Our underweight to the energy sector weighed on performance, as energy prices skyrocketed from inflationary pressures and the threat of reduced supply. We have a limited footprint within the sector but continue to look for companies that will generate strong, long-term returns such as Pioneer Natural Resources. Pioneer is an oil and gas exploration and production company that offers a combination of a strong asset base, quality balance sheet and compelling free cash flow yield at current commodity prices. We believe Pioneer has strong underlying drivers that will generate attractive risk-adjusted returns beyond shorter-term fluctuations in energy prices.”

1. Exxon Mobil Corporation (NYSE:XOM)

Number of Hedge Fund Holders: 83

Exxon Mobil Corporation is one of America’s biggest oil and gas companies. As of 2022, the company ranks 6th among the Fortune 500 companies. Exxon Mobil Corporation has paid and increased its dividends to its investors for the past 39 years, even during the steep decline of oil prices in 2014 and later in 2019. The company has a high dividend yield of about 4%, with an annual payout of $3.52. The latest quarterly dividend payment of $0.88 per share was made on June 10.

On June 7, Evercore ISI analyst Stephen Richardson upgraded Exxon Mobil Corporation’s shares from In-Line to Outperform and increased the price target from $88 to $120.

One more reason to put Exxon Mobil Corporation on the list is its plan to expand its carbon capture and storage program. The company has announced four new carbon capture and storage projects in the last two weeks of June alone.

Saturna Capital mentioned Exxon Mobil Corporation in its fourth-quarter 2021 investor letter. Here is what the firm said:

“Few companies maintain their position at the top for more than a decade or two. One that did was Exxon, which appeared decennially from 1980 through 2010. In 2019 it was ranked 10th, but as of writing has dropped to 39th place.”

You can also take a look at The 10 Best Stocks to Buy in 2022 According to Billionaire Richard Chilton and The 10 Best Stocks to Buy Now According to Michael Platt’s BlueCrest Capital.

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