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How to Use Inflation to Your Advantage: 2 Securities to Buy

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·3 min read
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The price action in the stock market has been fast and furious this year as investors have positioned their portfolios for higher inflation. Sector rotation has been on full display, with institutions shifting allocations toward sectors and industries that historically perform better in inflationary periods.

After lagging throughout the latter half of last year, the Basic Materials sector exemplifies this sector rotation as it has vastly outperformed the major indices with a 15.25% year-to-date return. This sector is currently ranked in the top 38% out of all 16 Zacks Ranked Sectors. The Basic Materials sector is displaying some favorable valuation and growth characteristics as illustrated below:

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Digging a bit deeper, one particular industry group within this sector that is outperforming is the Zacks Mining – Miscellaneous industry. The group is undervalued (9.83 forward P/E) and is ranked in the top 30% out of approximately 250 Zacks Ranked Industries. Because it is ranked in the top half of all industry groups, we expect this group to outperform the market over the next 3 to 6 months.

Historical research studies have shown that roughly half of a stock’s price movement can be attributed to its industry grouping. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1. By focusing on the leading stocks within the top 50% of Zacks Ranked Industries, we can dramatically improve our investing success.

Exchange-traded fund (ETF) performance can also serve as a confirmation indicator that supports our investment thesis. The Horizon Kinetics Inflation Beneficiaries ETF INFL is comprised of domestic and foreign equity securities of companies that are expected to benefit from rising prices of real assets. The stock we will discuss below makes up over 3% of the total INFL holdings.

Horizon Kinetics Inflation Beneficiaries ETF Price

Horizon Kinetics Inflation Beneficiaries ETF Price
Horizon Kinetics Inflation Beneficiaries ETF Price

INFL is displaying relative strength as the ETF is up nearly 8% this year while the S&P 500 is down over 5%. The great thing about the Horizon Kinetics Inflation Beneficiaries ETF is that it is made up of companies whose revenues are expected to increase with inflation without corresponding increases in expenses.

The company we will analyze below is also a component of the Zacks Mining – Miscellaneous industry group. Let’s take a closer look at this stock.

Brigham Minerals, Inc. (MNRL)

Brigham Minerals is a mineral acquisition company. MNRL is a domestic owner and operator of a portfolio of mineral and royalty interests. The company has interests in approximately 92,375 net royalty acres and a combination of nearly 8,600 oil and natural gas wells. Brigham Minerals was founded in 2012 and is headquartered in Austin, TX.

MNRL has surpassed earnings estimates in two of the past three quarters. The mineral acquisition firm sports the highest Zacks VGM rating of ‘A’, signaling strong trends in value, growth and momentum. MNRL has delivered a trailing four-quarter average earnings surprise of +0.39%, helping push the stock 86.3% higher in the past year.

Brigham Minerals, Inc. Price and EPS Surprise

Brigham Minerals, Inc. Price and EPS Surprise
Brigham Minerals, Inc. Price and EPS Surprise

Analysts are bullish on current-quarter prospects and have upped their EPS estimates by 16.22% in the past 60 days. The Zacks Consensus Estimate now stands at $0.43, representing a 115% growth rate relative to the same quarter last year. MNRL is slated to release the Q1 results on May 5th.


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Horizon Kinetics Inflation Beneficiaries ETF (INFL): ETF Research Reports

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