Good morning,
The latest readings on consumer and producer prices told investors something they already feared.
Inflation, which has never gone away, may be returning.
For much of 2023, the economy was experiencing disinflation. But disinflation only means the rate at which prices are increasing is slowing.
And now, even that may be changing.
Inflation is starting to resemble that obnoxious dinner guest who just won't leave your home.
But you don't have to let it ruin your portfolio.
We know that artificial intelligence stocks are all the rage. FOMO is running high as investors are piling into stocks like Nvidia.
Pivoting away from growth stocks means moving away from where the action is. And you'd be right.
But out-of-control government spending that will continue to inflate our monetary supply makes inflation almost inevitable. It's the definition of too much money chasing too few goods. And investors also have to consider geopolitical tensions and rising oil prices.
This is the definition of an inflationary market. So, wouldn't it be prudent to allocate at least some of your portfolio to defensive stocks?
That's the focus of this special presentation. These stocks come from companies that make products consumers can't do without. Analysts expect each of these stocks to do well even if inflation remains muted. But if the rate of inflation ticks higher, these stocks are likely to outpace the market.
View the 7 Stocks to Buy if Inflation Sticks Around in 2024
Don Miller
MarketBeat
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When inflation is high, it means that prices for goods and services are rising, which can decrease the value of money. Imagine you're at your favorite store, and the price of everything has gone up, but the amount of money you have stays the same. Suddenly, you can't buy as much as you used to. This scenario is challenging not just for shoppers but for investors too. Inflation can eat into investment returns, making it crucial to choose stocks wisely during such times. Here are some types of stocks to consider if inflation sticks around, helping you protect and potentially grow your investments despite the rising prices:
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Commodities and Natural Resources: Companies involved in commodities like oil, gas, gold, and other natural resources often do well during inflationary periods. That's because the prices of these raw materials tend to rise along with inflation. Investing in stocks of companies mining or selling these resources can be a way to hedge against inflation. It's like if you owned an apple orchard; as the price of apples goes up, so does the value of what you own.
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Consumer Staples: These are companies that sell things people need no matter what the economy is doing, like food, household goods, and hygiene products. Even when prices go up, people still need to eat and take care of their homes. Stocks in the consumer staples sector can provide steady performance since their products remain in demand, offering a level of protection against inflation.
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Real Estate: Real estate can be another hedge against inflation. This includes companies involved in owning, operating, or financing real estate properties. One way to invest in real estate is through Real Estate Investment Trusts (REITs), which are companies that own or finance income-producing real estate across different sectors. As property values and rents rise with inflation, so can the returns from REITs.
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Financial Sector: Banks and financial institutions can benefit from inflation because they can charge higher interest rates on loans. When interest rates go up, banks often earn more from the difference between what they pay on deposits and what they earn on loans. Investing in stocks of well-managed banks and financial companies might offer favorable returns in an inflationary environment.
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Dividend Growers: Look for companies with a strong history of increasing their dividends. These companies are often well-established and financially robust, able to raise their payouts to shareholders even when prices are rising. Investing in these stocks can provide a growing income stream that helps offset the effects of inflation over time.
When considering investments during periods of high inflation, it's essential to:
- Diversify Your Portfolio: Don't put all your investments in one type of stock or sector. Spreading your investments can help reduce risk.
- Focus on Quality: Choose companies with strong financials, a competitive edge, and a history of navigating through different economic conditions successfully.
- Be Prepared for Volatility: High inflation can lead to market volatility. Be prepared for ups and downs in your investment values and focus on long-term goals.
Investing in a high inflation environment requires careful selection of stocks that can either benefit from inflation or have the resilience to withstand its impacts. By focusing on sectors and companies likely to perform well or remain stable despite rising prices, investors can better protect their portfolios and potentially find growth opportunities amidst the challenges of inflation.
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