While Wall Street apparently seems content with the federal government’s efforts to contain recent banking failures, investors may want to start targeting inflation-resistant stocks to buy just in case. To be sure, the nuances behind bank bailouts are complex. Still, at the root, these lifelines tend to be inflationary. Basically, that money has to come from somewhere.
Further, if the Federal Reserve somehow manages to consistently curb accelerating consumer prices, it may then face another problem: preventing the economy from completely imploding. A lot of good work can be thrown into the trash if monetary policy sparks a severe downturn. Therefore, thinking ahead with inflation hedge stocks may be prudent. Finally, the AP recently warned that the banking crisis isn’t over yet. Moving forward, the question may be how bad will circumstances get before an eventual recovery? Without clear and confident answers, investors may want to load up on these inflation-beating stocks.
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While it certainly doesn’t rank as the most exciting name among inflation-resistant stocks, Costco (NASDAQ:COST) forwards a business that screams mitigation of accelerating prices. As an open-warehouse-style retailer, Costco encourages bulk purchases. Should prices rise, this action basically facilitates economies of scale. Of course, the buying in bulk bit only works for durable or long-shelf-life goods that you’ll use no matter what.
Financially, Costco benefits from carrying a stable balance sheet. For example, its cash-to-debt ratio pings at 1.5, above 72.33% of sector rivals. Also, its debt-to-equity ratio comes in at 0.4, favorably below the sector median stat of 0.71. Operationally, Costco’s three-year revenue growth rate of 14% outflanks 83.45% of the field. Also, its book growth rate during the aforementioned period comes out to a healthy 10.4%.
Finally, Wall Street analysts peg COST as a consensus moderate buy. On average, their price target lands at $540.10, implying over 8% upside potential. Again, it’s boring but it gets the job done as one of the inflation hedge stocks.
Kroger (KR)
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Frankly, the underlying business of supermarket operator Kroger (NYSE:KR) sells itself regarding inflation-resistant stocks. Basically, no matter how dire circumstances become in the economy, people need to eat. Further, they can trade down other luxury purchases, such as going out to dinner at fancy restaurants. But you cannot trade down from the minimum calorie intake. That’s the cynical narrative of KR stock.
Compellingly, Kroger also presents a fundamental discount to astute investors. Right now, the market prices KR at a forward multiple of 11. As a discount to projected earnings, Kroger ranks better than 80% of companies listed in the retail defensive industry. Operationally, Kroger’s three-year revenue growth rate comes in at 10.3%, outpacing 74.3% of its peers. Also, its book growth rate during the same period is 8.7%, above 62.59% of sector players.
Lastly, covering analysts peg KR as a consensus moderate buy. Their average price target comes in at $53.82, implying over 9% upside potential. While not exciting, it’s a shoo-in for inflation-beating stocks.
Dominion Energy (D)
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With utilities like Dominion Energy (NYSE:D), they inherently rank among inflation-proof investments. When you get down to it, Dominion and its ilk enjoy what’s known as a natural monopoly. Basically, nothing legal prevents competitors from taking on Dominion. However, because of the steep barrier to entry, enterprises simply don’t even bother. Still, D stock has been wobbly this year, losing more than 10% of equity value.
Nevertheless, from a longer-term perspective, Dominion intrigues contrarians. For example, the market prices D stock at a forward multiple of 14.3. As a discount to projected earnings, Dominion ranks better than 64.89% of its peers. Also, the company posts a three-year EBITDA growth rate of 6.2%, above 60.14% of sector players. And its operating margin over the trailing year impresses at 23.95%. That’s above 77.9% of the field.
To close out, analysts peg D as a hold but with a price target of $61.82. This estimate implies over 9% upside potential. It’s not the prettiest idea but it’s a relevant contender for inflation-resistant stocks.
Ross Stores (ROST)
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An American chain of discount department stores, Ross Stores (NASDAQ:ROST) might be a risky idea for inflation protection stocks. Nevertheless, forward-thinking investors might be able to see some significant gains here. Essentially, with society normalizing, more companies have begun recalling their workers. Therefore, folks need to upgrade their wardrobe. Ross Stores facilitates just that but at a cheaper cost.
While shares slipped about 10% since the start of the year, in the past 365 days, they’re up almost 9%. Financially, one of Ross Stores’ top attributes stems from its balance sheet. For instance, its Altman Z-Score pings at 4.86, implying high fiscal stability and low risk of bankruptcy. Operationally, Ross features a three-year revenue growth rate of 6.8%, ranked better than 62% of the retail cyclical industry. Also, its book growth rate pings at 9.9% during the aforementioned period.
Turning to Wall Street, analysts peg ROST as a consensus strong buy. Their average price target stands at $126.36, implying 21% upside potential.
Newmont (NEM)
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While people can argue about the viability of the economy, the hard fact is that gold performed well this year. And that’s strange because the Fed hasn’t exactly relaxed its monetary tightening program. With fewer dollars chasing after more goods, this backdrop should be deflationary for gold. It’s not, which makes Newmont (NYSE:NEM) an intriguing idea for inflation-resistant stocks.
Another factor that bolster NEM is the underlying copper business. Good economy or bad, society consumers untold amounts of copper. Therefore, even under the weight of accelerating prices, NEM makes a case for inflation-beating stocks. Financially, Newmont could use some work if I’m being honest. For example, its balance sheet is only moderately stable based on the numbers. Further, its revenue growth is a bit below average while its net margin slipped into negative territory. For those willing to look beyond the Covid-19 impact, analysts peg NEM as a strong buy. Their average price target hits $58.92, implying 21% upside potential.
Bunge (BG)
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An agribusiness and food company, Bunge (NYSE:BG) offers a natural arena for inflation-resistant stocks. As stated with Kroger, people must eat. It doesn’t matter what’s going on with the economy or how advanced technology becomes. However, Bunge disclosed mixed results for its latest earnings report. Therefore, BG remains challenged so far this year, with shares stumbling over 5% since the January opener.
Nevertheless, the red ink may tempt those seeking inflation hedge stocks. In particular, the market prices BG at a forward multiple of 7.79. As a discount to projected earnings, Bunge ranks better than nearly 87% of companies listed in the consumer packaged goods industry. As well, its priced at 0.21-times trailing sales, below 89.62% of its peers. On the balance sheet, the company offers decent metrics. For example, its Altman Z-Score pings at 4.2, indicating solid stability and low bankruptcy risk.
Lastly, analysts peg BG as a consensus moderate buy. Their average price target comes out to $118.60, implying 31% upside potential.
Phillips 66 (PSX)
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A downstream energy giant, Phillips 66 (NYSE:PSX) mostly focuses on the retail and refining aspect of the energy value chain. In other words, if you’re pumping gasoline into your car, you’re dealing with a downstream player. Fundamentally, Phillips 66 benefits from a captive audience. For the majority of American households, making the transition to electrification isn’t financially feasible. Therefore, PSX makes a cynical case for inflation-resistant stocks.
Further, PSX may be one of the discounted inflation-beating stocks. Right now, the market prices shares at a trailing multiple of 3.61. As a discount to earnings, Phillips 66 ranks better than 76.97% of companies in the oil and gas industry. Also, it trades at 5.15-times free cash flow, ranked better than 63.59% of its peers. Operationally, the company enjoys a three-year revenue growth rate of 14.9%, above 63.29% of sector players. As well, its EBITDA growth rate during the same period is an impressive 39.3%. On a final note, analysts peg PSX as a consensus moderate buy. Their average price target stand sat $126.57, implying over 35% upside potential.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
