The Fed recently decided to implement a more aggressive monetary policy in the near term. It has decided to slowly do away with its bond purchases and hike interest rates next year. The Fed took this decision to counter the threat of inflationary pressure on the recovering economy. And why not? Prices of vital goods and services have now touched the highest level in decades.
An increase in prices doesn’t bode well for the broader stock market. However, real estate investment trusts (REITs), consumer staples as well as gold mining companies stand to benefit from a surge in inflation. Therefore, it is prudent for investors to invest in stocks like Apartment Income REIT Corp. AIRC, Coty Inc. COTY and US Gold Corp USAU
Increase in Inflation – A Concern for Investors
The Fed’s preferred inflation measure or the personal consumption expenditures (PCE) index is projected to jump 5.7% on a year-over-year basis in November or the fastest since 1982, per data compiled by Bloomberg, citing a yahoo finance article. The core PCE is also expected to climb upward.
Notably, such high projections are consistent with other inflation data that have been released in recent times. Per the Bureau of Labor Statistics, November’s consumer price index (CPI) jumped 6.8% year over year, as mentioned in a MarketWatch article. In fact, consumer prices in the United States were at their highest since 1982 and they rose for the sixth consecutive month.
Price increases were across the board, with gasoline, grocery store, car, apparel, home furnishing, and airline prices climbing last month. Prices increased due to the disparity between demand and supply. While there was strong demand for goods, manufacturers had to deal with supply constraints.
Watch Out for Stocks That Benefit From a Rise in Inflation
The rise in inflation did make investors anxious. With inflation increasing, bond yield is positioned to stay elevated, thereby diminishing the allure of growth-oriented stocks. But investors shouldn’t be disappointed. After all, an increase in inflation tends to be good for certain stocks. For instance, property prices increase with an uptick in inflation. Landlords can also charge more as property value increases. Thus, real estate can be purchased through an indirect investment in REITs.
Similarly, companies that belong to the consumer staples sector have higher pricing power and are unperturbed by an increase in inflation. At the same time, gold doesn’t lose its sheen at times of higher inflation. In fact, gold can be purchased by buying gold mining stocks.
3 Best Choices
We have, thus, highlighted three stocks from the aforementioned areas that are worth an investment now.
Apartment Income REIT primarily focuses on the management and ownership of apartment communities, particularly in the United States. Apartment Income REIT currently has a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for its next-year earnings has moved up 3.1% over the past 60 days. Apartment Income REIT’s expected earnings growth rate for the next year is 7.9%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Coty engages in the manufacture and distribution of beauty products, including body and skincare items, fragrances, etc. Coty sells its products through departmental stores, drug stores and duty-free shops. Coty, at present, has a Zacks Rank #1. The Zacks Consensus Estimate for its next-year earnings has moved up 26.7% over the past 60 days. Coty’s expected earnings growth rate for the next year is 52%.
US Gold is known for exploring gold, copper, and zinc deposits, to name a few. US Gold holds an interest in gold exploration projects in Nevada and Idaho. US Gold, as of now, has a Zacks Rank #2. The Zacks Consensus Estimate for its next-year earnings has moved up 33.3% over the past 60 days. US Gold’s expected earnings growth rate for the next year is 17%.
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