- As the price of oil rises, inflation is likely to reverse its downward trajectory of the last year.
- A sound strategy is to look for stocks that are proven performers regardless of inflation concerns.
- Costco: The company’s business model ensures stable revenue and earnings regardless of inflation.
- Estee Lauder: The stock appears to have overcorrected which leaves room on the upside even with higher inflation.
- Texas Instruments: This “boring” tech stock continues to prioritize shareholder value.
On August 10th and August 11th, investors will get the next read on inflation. On August 10, the latest read on the Consumer Price Index (CPI) is released. That will be followed by the Producer Price Index (PPI) on Friday.
Many economists and market analysts are forecasting that core inflation will move higher on a year-over-year basis. But the real story is not likely to show up until September or later. That’s because the current reading will reflect oil prices that were in the upper $70 range.
But investors and consumers are noticing that oil prices are on the rise. And the U.S. Energy Information Administration (EIA) recently updated its forecast and expects the price of crude oil to average $86 a barrel for the second half of the year as domestic oil production rises by 850,000 barrels a day.
This means tomorrow’s number may lull investors into a false sense of security as to the direction inflation is headed. And that may have an effect on the economy as well as your portfolio.
That’s why now is a good time to revisit your 2022 playbook and find stocks that are likely to perform well no matter which direction inflation heads. Here are three stocks to consider.
Membership Has Benefits for Consumers and Shareholders
The first stock to consider is Costco Wholesale Corp (NASDAQ:COST). The company’s sales and profits held up well in 2020 and 2021 despite the restrictions imposed by a global pandemic. Earnings grew 13% in 2022 despite rising inflation. And that year-over-year growth has continued into 2023.
This is about more than a great deal on a hot dog lunch. Costco benefits from its business model as a membership club. Consumers pay annual dues to belong to the club and that acts as an incentive for them to shop there regardless of what is happening in the economy.
And consumers aren’t the only beneficiaries. Investors in COST stock have been treated to a 148% gain in the company’s stock price in the last five years. Plus, they get a dividend which currently has an annual payout of $4.02 per share and has been increasing for 19 consecutive years.
This Stock May be Ready for Its Close Up or a Closer Look
Shares of Estee Lauder Companies (NYSE:EL) are down 32% in 2023 and are down 54% since December 31, 2021. However, when you look at the company’s revenue and earnings picture, this looks like a case of a stock getting above its skis and then overcorrecting in the other direction.
Estee Lauder stock cratered in the first quarter of 2020 at the onset of the pandemic. But shares quickly began to rise as many investors believed that demand for the company’s skin care, cosmetics and fragrance, and hair care products would accelerate in anticipation of the economy reopening.
Revenue and earnings are down on a year-over-year basis in 2023. Which is interesting because it shows that revenue and earnings growth accelerated in 2022 as inflation was rising.
However, it’s the bottom line that is causing some concern. Earnings were down 75% year-over-year in its May earnings report. This is largely due to softness in Asia.
Critics will cite the fact that analysts are lowering their price targets for EL stock. That’s true, but the revised price targets are still well above the current stock price. And even if consumers cut back discretionary purchases due to higher inflation, the company has proved that consumers are willing to prioritize its products in a higher price environment.
A Safe Choice in the Tech Sector
Texas Instruments (NASDAQ:TXN) won’t be fogging the mirror of many investors in the age of artificial intelligence (AI). While there are plenty of AI stocks that belong in your portfolio, rising inflation is a good reason to make sure you have balance in your portfolio.
That can mean looking at a company that is the market leader in analog and embedded chips and has a global customer base of over 100,000. This provides a broad, stable revenue base.
And the company uses that revenue to prioritize shareholder value. In its most recent quarter, the company generated a 17% free cash flow margin. That’s in addition to a dividend that has a yield of 2.96% and has been increasing for the last 19 consecutive years.
The company’s “boring” performance may not excite investors in a risk-on market. However, as sentiment moves to a more risk-off tone, you can expect shares of TXN stock to look more attractive.