In this article, we discuss 10 best stagflation stocks to buy now.
Stagflation Definition: What is Stagflation?
Stagflation refers to consistently high inflation paired with peak unemployment and slow demand. While economists initially believed that stagflation was a foreign concept, as unemployment and inflation rates usually move in different directions, they learned after the ‘Great Inflation’ in 1970s that stagflation is indeed real and it can batter an economy. The term stagflation was coined in 1965 when Iain Macleod, a British Conservative Party politician, said in a House of Commons speech:
“We now have the worst of both worlds — not just inflation on the one side or stagnation on the other, but both of them together. We have a sort of ‘stagflation’ situation and history in modern terms is indeed being made.”
Stagflation favors defensive companies whose products and services are necessary for people’s day-to-day lives. This means their share prices often stay resilient despite a slowing macro backdrop. In quantitative terms, defensive sectors usually have a market beta of under 1, which means they outperform when the benchmark index declines, whereas cyclical sectors have a market beta of more than 1, indicating underperformance when the index falls. Utilities, energy, consumer staples, healthcare, and real estate are some of the defensive sectors that perform well, whereas their cyclical counterparts like technology, industrials, and financials take a hit during stagflation economies.
Jonathan Wright, professor of economics at Johns Hopkins University, explained that stagflation may occur if a recession is triggered before inflation is limited to where the Federal Reserve wants it to be.
Stagflation remains the primary risk for the global economy in 2023, according to Wall Street experts who believe that any rally in equity markets is too unsustainable following the severe selloff in 2022. Nicole Kornitzer, a Paris-based portfolio manager at Kornitzer Capital Management Inc, told Bloomberg on November 28:
“Next year is still going to be difficult. Definitely, stagflation is the outlook for now.”
A majority of Wall Street experts believe that the stock market is heading towards stagflation in 2023, similar to the 1970s, as per Bank of America. In its most recent survey of fund managers, BofA found that 92% of them see a period of high inflation and low economic growth in 2023, while 0% foresee a bullish “goldilocks” scenario, where the economy evades a recession and inflation declines.
Some of the best stagflation stocks to buy include AbbVie Inc. (NYSE:ABBV), The Procter & Gamble Company (NYSE:PG), and Walmart Inc. (NYSE:WMT).
Photo by Mirza Babic on Unsplash
Our Methodology
For this article, we selected stocks which are defensive in nature, offer strong market visibility, have resilient dividend profiles, and display a longstanding history of surviving volatile market environments. We have assessed the hedge fund sentiment from Insider Monkey’s database of 920 elite hedge funds tracked as of the end of the third quarter of 2022.
10 Best Stagflation Stocks To Buy
10. The Southern Company (NYSE:SO)
Number of Hedge Fund Holders: 31
The Southern Company (NYSE:SO) is a Georgia-based company that engages in the generation, transmission, and distribution of electricity. It operates through Gas Distribution Operations, Gas Pipeline Investments, Wholesale Gas Services, and Gas Marketing Services segments. On October 18, The Southern Company declared a quarterly dividend of $0.68 per share, in line with previous. The dividend is distributable on December 6, to shareholders of record on November 21. The Southern Company’s dividend yield on November 30 came in at 4.14%.
On October 24, Guggenheim analyst Shahriar Pourreza maintained a Buy recommendation on The Southern Company but lowered the price target on the shares to $69 from $80. The analyst refreshed some estimates ahead of Q3 earnings season from the Power and Utilities group to factor in “known and measurable year-over-year items,” to adjust for seasonality, and to re-mark to the latest commodity curves.
According to Insider Monkey’s data, 31 hedge funds were bullish on The Southern Company at the end of Q3 2022, compared to 29 funds in the earlier quarter. Jim Simons’ Renaissance Technologies held the biggest stake in the company, comprising 3 million shares worth $208.2 million.
Like AbbVie Inc., The Procter & Gamble Company, and Walmart Inc., The Southern Company is one of the best stagflation stocks to invest in.
9. General Mills, Inc. (NYSE:GIS)
Number of Hedge Fund Holders: 40
General Mills, Inc. (NYSE:GIS) manufactures and markets branded consumer foods worldwide. The company operates through five segments – North America Retail, Convenience Stores & Foodservice, Europe & Australia, Asia & Latin America, and Pet. General Mills, Inc. is one of the best stagflation stocks to invest in. On November 14, the company declared a $0.54 per share quarterly dividend, in line with previous. The dividend is payable on February 1, 2023 to shareholders of the company as of January 10.
Exane BNP Paribas analyst Max Gumport on November 15 assumed coverage of General Mills, Inc. with an Outperform rating and a $90 price target. With a possible recession approaching, the analyst noted that the U.S. packaged food group has historically outperformed the S&P 500 during economic downturns, but he told investors it is “important to separate the wheat from the chaff”. He thinks General Mills, Inc. is “reaching for a higher ground” and that its Blue Buffalo pet food brand has a significant runway.
According to Insider Monkey’s Q3 data, 40 hedge funds were long General Mills, Inc., compared to 35 funds in the earlier quarter. Ray Dalio’s Bridgewater Associates is a prominent stakeholder of the company, with 1.6 million shares worth $129 million.
Here is what Chartwell Investment Partners has to say about General Mills, Inc. 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.”
8. Chubb Limited (NYSE:CB)
Number of Hedge Fund Holders: 41
Chubb Limited (NYSE:CB) is a Switzerland-based provider of insurance and reinsurance products worldwide. The company operates through North America Commercial P&C Insurance, North America Personal P&C Insurance, North America Agricultural Insurance, Overseas General Insurance, Global Reinsurance, and Life Insurance segments. On November 17, Chubb Limited declared a quarterly dividend of $0.83 per share, in line with previous. The dividend is payable on January 6, 2023 to shareholders of record on December 16.
On November 15, Atlantic Equities analyst John Heagerty upgraded Chubb Limited to Overweight from Neutral with a $240 price target. The analyst raised his fiscal 2023 earnings forecasts by a cumulative 12%, which he said makes Chubb Limited’s current valuation “much more attractive.” The property and casualty insurance sector is well positioned to benefit from the current profitability improvement and higher interest rates, which will continue to “feed through into stronger investment income and operating profitability” over the next few years, the analyst told investors.
According to the third quarter database of Insider Monkey, 41 hedge funds were bullish on Chubb Limited, compared to 35 funds in the prior quarter. Andreas Halvorsen’s Viking Global is the biggest position holder in the company, with 3.6 million shares worth $653.5 million.
Here is what Aristotle Capital Management Value Equity has to say about Chubb Limited in its Q1 2022 investor letter:
“Our investment in Chubb began in the fourth quarter of 2015, shortly after ACE Limited announced it would acquire the Chubb Corporation, creating the largest global property and casualty insurance company by underwriting income. During our nearly seven-year holding period, the company’s combination progressed leading to the realization of main catalysts we had identified. These included cost savings, broadened product offerings and an expanded customer base, as well as enhanced distribution capabilities and improved pricing due to scale. In addition, Chubb successfully grew its profitable high-net-worth personal lines. While we still consider Chubb to be a high-quality business, few catalysts remain after what was, in our opinion, a remarkable run of successful business execution. As such, we decided to step aside in favor of what we believe to be a more optimal investment in Blackstone.”
7. eBay Inc. (NASDAQ:EBAY)
Number of Hedge Fund Holders: 42
eBay Inc. (NASDAQ:EBAY) is a California-based company that operates marketplace platforms connecting buyers and sellers in the United States and internationally. On November 29, eBay Inc. declared a $0.22 per share quarterly dividend, in line with previous. The dividend is distributable on December 16, to shareholders of record on December 1. eBay Inc. is one of the best stagflation stocks to invest in.
On November 15, MoffettNathanson analyst Michael Morton assumed coverage of eBay Inc. with a Market Perform rating and a $44 price target. He does not believe in the bear scenario of peak e-commerce penetration and believes e-commerce penetration growth will continue at the historical levels, said the analyst, who prefers market share gainers and finds it “challenging to have an appetite for market share losers”.
Among the hedge funds tracked by Insider Monkey, 42 funds reported owning stakes worth $1 billion in eBay Inc. at the end of the third quarter of 2022, compared to 43 funds in the prior quarter worth $1.3 billion. D E Shaw held the leading position in the company, comprising nearly 6 million shares worth $218 million.
Here is how Smead Capital Management mentioned eBay Inc. in the Q2 2022 investor letter:
“We believe you need to avoid these formerly glamorous stock groups for many years. We loved to use eBay Inc. as a poster child back in 1999 for the dotcom bubble. We bought it eight years later and have done very well on it. We wouldn’t have done well if we bought it in the early years of that bear market, or even five years later. If you think this bear will be shorter and or less damaging than the dotcom bear market of 2000-2003, you could be showing your inexperience!.”
6. Crown Castle Inc. (NYSE:CCI)
Number of Hedge Fund Holders: 48
Crown Castle Inc. (NYSE:CCI) owns a portfolio of communications infrastructure that connects cities and communities to essential data, technology, and wireless services. Crown Castle Inc. owns, operates, and leases cell towers across the United States. On October 20, the company declared a $1.565 per share quarterly dividend, a 6.5% increase from its prior dividend of $1.470. The dividend is payable on December 30, to shareholders of record on December 15. Crown Castle Inc.’s dividend yield on December 1 came in at 4.94%.
On November 23, Raymond James analyst Ric Prentiss raised the price target on Crown Castle Inc. to $153 from $143 and reiterated an Outperform rating on the shares. The analyst still sees upside in Crown Castle Inc. and all U.S. tower stocks, especially if rates continue to stabilize.
According to Insider Monkey’s Q3 data, 48 hedge funds were bullish on Crown Castle Inc., with collective stakes exceeding $1 billion. Ken Fisher’s Fisher Asset Management held the biggest stake in the company, consisting of 3 million shares worth $434 million.
In addition to AbbVie Inc., The Procter & Gamble Company, and Walmart Inc., Crown Castle Inc. is one of the premier stagflation stocks to monitor.
Here is what ClearBridge Investments Global Infrastructure Income Strategy has to say about Crown Castle International Corp. in its Q1 2022 investor letter:
“U.S. communications company Crown Castle International was the largest detractor from quarterly performance. Crown Castle is the leading independent owner and operator of wireless communications infrastructure in the U.S. with a portfolio of approximately 40,000 towers. The stock underperformed as, driven by rising interest rates, investors rotated away from defensive into more value-oriented sectors. Communications infrastructure remains attractive, however, as companies continue to deploy greater capital spend to support the strong tailwinds from 5G.”
5. Walmart Inc. (NYSE:WMT)
Number of Hedge Fund Holders: 68
Walmart Inc. is an American general merchandise retailer and it is one of the best defensive stocks to buy for stagflation. On November 17, Credit Suisse analyst Robert Moskow raised the price target on Walmart Inc. to $160 from $145 and maintained an Outperform rating on the shares. The analyst said that Walmart Inc. posted a “strong” Q3, with sales up 8.7%, adjusted operating income of $6.1 billion, and earnings per share of $1.50. Management lifted guidance in accordance with Q3 results but maintained a conservative outlook for Q4, the analyst added, pointing out that he believes there is upside to Q4 given Walmart Inc.’s trend of setting conservative forecasts since the miss in Q1.
According to Insider Monkey’s third quarter database, 68 hedge funds were long Walmart Inc., compared to 67 funds in the prior quarter. In Q3, the collective stakes held by hedge funds increased to $4 billion from $3.7 billion in Q2 2022. Ken Fisher’s Fisher Asset Management is the leading position holder in the company, with 8.12 million shares worth $1.05 billion.
In its Q2 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and Walmart Inc. was one of them. Here is what the fund said:
“The pandemic has created challenges for businesses large and small; one major challenge for large essential retailers such as ClearBridge holdings Home Depot, Walmart Inc. and Costco has been ensuring adequate staffing to meet demand under trying conditions. All three instituted enhanced pay practices during the pandemic, with raises, unplanned bonuses and other benefits helping compensate employees for their efforts in a difficult environment. In September 2020 Walmart raised wages for 165,000 employees, including a number of entry positions to $15 an hour. It followed this in February with a raise for 425,000 workers that moved its average pay above $15 an hour.”
4. Costco Wholesale Corporation (NASDAQ:COST)
Number of Hedge Fund Holders: 69
Costco Wholesale Corporation (NASDAQ:COST) operates membership warehouses offering branded and private-label general merchandise products in the United States, Puerto Rico, Canada, the United Kingdom, Mexico, Japan, Korea, Australia, Spain, France, Iceland, China, and Taiwan. Costco Wholesale Corporation is one of the top stagflation stocks to invest in.
On November 28, Bank of America said Costco Wholesale Corporation had strong customer traffic on Black Friday. BofA analyst Robert Ohmes sees warehouse clubs as well positioned compared to peers this holiday season on the back of their robust value proposition and membership strength. For Costco Wholesale Corporation, BofA believes a premium valuation is warranted given the solid customer traffic growth and strong membership renewal rates. Even with a murky economic outlook for 2023, membership rates will potentially remain resilient for Costco Wholesale Corporation, the analyst told investors.
Deutsche Bank analyst Krisztina Katai on November 29 reiterated a Buy recommendation on Costco Wholesale Corporation but trimmed the price target on the shares to $578 from $581. The analyst told investors to stick with the “winners” in retail.
According to Insider Monkey’s third quarter data, Costco Wholesale Corporation was part of 69 hedge fund portfolios, compared to 64 in the prior quarter. Ray Dalio’s Bridgewater Associates is the largest stakeholder of the company, with 1.2 million shares valued at $566.5 million.
Here is what Cooper Investors Global Equities Fund has to say about Costco Wholesale Corporation in its Q3 2022 investor letter:
“The US economy continues to run hot – the labor market is extremely tight and a number of executives we spoke to described their challenges in retaining staff and preventing competitors from poaching talent. Industrial companies in particular continue to see record backlogs, with the easing of logistics and supply chain constraints only just starting to have an impact on deliveries and lead times.
In terms of inflationary pressures, the vast majority of our holdings have been able to leverage strong market positions and stakeholder relationships to push pricing through in 2022 such that minimal impact to earnings has occurred. Clearly this is not a lever than can be pulled indefinitely but the more experienced management teams have kept some of their powder dry. Our meeting with management at Costco in Seattle was memorable for several reasons but one was their latent ability to increase member pricing which they have not done in over 5 years (and thus likely to do in 2023)…
…To conclude we’ll return to our meeting with Costco mentioned earlier. The business quality is no secret after decades of incredible execution, but the meeting gave us renewed conviction around Value Latencies in terms of the runway for growth, the focus on enhancing customer value, Costco’s vast buying power (it purchases 30% of the world’s jumbo cashews as one example) and management’s feral focus on the business model and cost discipline.”
3. The Procter & Gamble Company (NYSE:PG)
Number of Hedge Fund Holders: 69
The Procter & Gamble Company provides branded consumer packaged goods worldwide. It operates through five segments – Beauty, Grooming, Health Care, Fabric & Home Care, and Baby, Feminine & Family Care. The Procter & Gamble Company is one of the top picks of smart investors for a stagflation portfolio. The company expects to pay around $9 billion in dividends and to repurchase $6 billion to $8 billion of common shares in fiscal 2023.
On November 22, Jefferies analyst Kevin Grundy raised the price target on The Procter & Gamble Company to $164 from $149 and kept a Buy rating on the shares following the company’s “upbeat” investor day meeting. While trade down remains a risk, The Procter & Gamble Company “remains a core holding” and the event pointed out the transformation of the company’s “winning strategy” of four core focus areas including supply, sustainability, digital acumen, and human capital, the analyst told investors.
Among the hedge funds tracked by Insider Monkey, The Procter & Gamble Company was part of 69 public stock portfolios at the end of Q3 2022, compared to 71 in the prior quarter. Peter Rathjens, Bruce Clarke, and John Campbell’s Arrowstreet Capital is a significant stakeholder of the company, with 5.6 million shares worth $712 million.
2. Eli Lilly and Company (NYSE:LLY)
Number of Hedge Fund Holders: 75
Eli Lilly and Company (NYSE:LLY) is an American company that discovers, develops, and markets human pharmaceuticals worldwide. Healthcare stocks are defensive in nature, making them one of the best picks for a stagflation environment.
Berenberg analyst Kerry Holford on November 22 raised the price target on Eli Lilly and Company to $375 from $345 and kept a Buy rating on the shares. Despite currency headwinds, Eli Lilly and Company’s “underlying performance remains strong,” the analyst wrote in a research note. The analyst said initial signs from the Mounjaro diabetes launch are positive and a label expansion to include an obesity indication is now expected before the end of next year.
According to Insider Monkey’s data, 75 hedge funds were long Eli Lilly and Company at the end of the third quarter of 2022, compared to 70 funds in the prior quarter. Rajiv Jain’s GQG Partners is a notable position holder in the company, with 1.6 million shares worth $515.5 million.
Here is what ClearBridge Global Growth Strategy has to say about Eli Lilly and Company in its Q3 2022 investor letter:
“In the U.S., we initiated a position in pharmaceutical maker Eli Lilly as it brings out new drug candidates for diabetes and Alzheimer’s disease. New drugs impact diabetes but have also demonstrated significant weight loss for patients who are overweight and have other co-morbidity issues as a result. Lilly is one of the two key players in diabetes care and we believe the potential market opportunity is much higher than the consensus forecasts as we are seeing evidence of accelerating adoption.”
1. AbbVie Inc. (NYSE:ABBV)
Number of Hedge Fund Holders: 80
AbbVie Inc. is an Illinois-based biopharmaceutical company that originated as a spin-off of Abbott Laboratories. On October 28, AbbVie Inc. declared a $1.48 per share quarterly dividend, a 5% increase from its prior dividend of $1.41. The dividend is distributable on February 15, 2023 to shareholders of record on January 3. AbbVie Inc.’s dividend yield on December 1 came in at 3.67%.
Credit Suisse analyst Trung Huynh on November 17 initiated coverage of AbbVie Inc. with an Outperform rating and a $170 price target, naming it one of his two top ideas a relative basis among the U.S. large-cap biopharma peer group. AbbVie Inc.’s 45%, plus or minus 10% erosion, expectation of Humira is “too conservative” and the analyst sees long-term resilience from portfolio leverage as well as incremental growth from the company’s “robust pipeline”.
According to Insider Monkey’s data, 80 hedge funds were long AbbVie Inc. at the end of September 2022, compared to 71 funds in the prior quarter. Phill Gross and Robert Atchinson’s Adage Capital Management is a prominent stakeholder of the company, with 1.75 million shares worth $235.5 million.
Here is what Baron Funds specifically said about AbbVie Inc. in its Q3 2022 investor letter:
“AbbVie Inc. is a drug developer best known for Humira, an immunosuppressant that is the best selling drug of all time. Given outsized key product risk (patent cliff and generic launches beginning in 2023), AbbVie has broadened its pipeline, highlighted by its Allergan acquisition. Shares fell on results that missed consensus and indications that legacy franchises were outperforming newer product launches, calling into question AbbVie’s long-term strategy. With promising assets in the pipeline and its robust cash flow profile, we believe AbbVie will grow well into the future.”
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This article is originally published at Insider Monkey.
