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How to Keep Your Portfolio From Getting Burned by Red-Hot Inflation

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Do you remember the childhood story about Chicken Little? An acorn falls on Chicken Little’s head, and he jumps to the conclusion that the sky is falling.

This reminds me a bit of the financial media and market pundits these days, especially regarding this week’s consumer and wholesale inflation data.

So, in today’s Market360, we’re going to take a further look into this week’s numbers and what they mean for the market.

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Inflation Runs Hots

On Wednesday, the Consumer Price Index (CPI) for June was released — and the headline number was ugly. The Labor Department reported that the CPI rose 1.3% in June and 9.1% year-over-year (or YOY), which put inflation back at 40-year highs. Economists had forecast a 1.1% month-over-month jump and an 8.6% YOY increase.

Once again, gasoline, shelter and food accounted for the majority of the increase, with the energy index rising 7.5% month-over-month in June and the gasoline index rising 11.2%.

Now, it’s important to note that core CPI, which excludes food and energy, came in at 5.9%. While this was still above economists’ projections for a 5.7% increase, it was down below the 6% rise in May. So, core inflation is declining, and it’s another sign that inflation did peak in March.

Then this morning, the Labor Department shared the Producer Price Index (PPI) for June — and the financial media jumped at the top-line number again. For June, the PPI increased 11.3% YOY, well above economists’ estimates for a 10.7% YOY rise. Month-over-month, PPI climbed 1.1%. This was also above economists’ estimates for a 0.8% increase. Energy was the biggest factor behind the jump. Energy rose 10% from May, and gas prices rose 18.5%.

On the surface, the reading isn’t good. However, if you dig a little deeper, there were a few positives. For example, the PPI’s 11.3% YOY increase is still down from the record 11.6% YOY increase in March. I should also add that the core PPI, which excludes energy, food and trade services, rose 6.4% year-over-year and 0.3% month-over-month. This is down from the 6.8% gain in May. And the 0.3% increase from May was also below economists’ expectations for a 0.5% increase.

Stay Focused on Earnings

There are also signs that the consumer is still alive and well.

Take PepsiCo‘s (NASDAQ:PEP) second-quarter results on Tuesday: Earnings increased 8.1% YOY to $1.86 per share, up from $1.72 per share in the same quarter of last year. Analysts were calling for earnings of $1.74 per share, so PEP beat analysts’ expectations by 6.9%.

Revenue climbed 5.3% YOY to $20.23 billion, up from $19.22 billion in the same quarter a year ago, which slightly topped analysts’ revenue estimates. Organic revenue growth came in at 13%, compared to organic growth of 12.8% in the second quarter of 2021.

For full-year 2022, company management anticipates organic revenue will increase 10%, versus previous expectations for 8% organic revenue growth. Company management commented, “Our updated full-year guidance reflects the strength and resilience of our categories and consumer demand trends, as well as the impact of higher than expected input and operating cost inflation for the balance of 2022.”

Now, I know there was a lot of doom and gloom today following some of the Big Banks’ reports and their comments on the U.S. economy, but don’t let that deter you from the stock market. (I’ll talk more about the Big Banks’ earnings results in Saturday’s Market360, so keep an eye on your inbox for that!)

The fact of the matter is that fundamentally superior companies — companies that can continue to grow their sales and earnings — will prevail in this inflationary environment. This especially holds true for my oil and energy plays, which I expect to post record earnings in the coming weeks.

As I mentioned last month, FactSet reported that analysts have lowered second-quarter earnings estimates for seven of 11 sectors, but analysts have upped energy earnings estimates by a whopping 29.4%.

And early this week Axios reported energy will drive second-quarter earnings growth:

Axios continues:

Earnings per share — the key gauge of profits on Wall Street — for S&P 500 companies are expected to be up by between 5% and 6% overall.

According to Credit Suisse analysts, EPS for the index’s energy companies will be up a tidy 243% in the second quarter, compared to last year, thanks to exploding oil and gas prices.

The kicker: Excluding energy companies, S&P profits would actually be down nearly 3%.

Bottom line: Right now, energy stocks are holding up the market. So, don’t listen to the Chicken Littles and negative Nellies in the financial media. The reality is, oil is king, and I predict it’s going to remain king for at least the next two decades.

In fact, I believe, we’re at the start of a new, inevitable oil bull market.

It’s why I released a new special report called 5 Stocks for the New Oil Age. In this report, I review the three catalysts that will keep oil prices surging and reveal the five best oil stocks that can protect your portfolio in the coming years. (For details on how to gain access to this report, go here.)

The fact of the matter is my Growth Investor stocks continue to profit from inflation, and they should remain an oasis in the current chaotic environment. It’s why my Growth Investor stocks are now characterized by 61.6% average annual sales growth and 429.2% average annual earnings growth and why the analyst community has increased earnings estimates for my average Growth Investor stock by 19.9% in the past three months.

If you want to position your portfolio to prosper, join me at Growth Investor today. You’ll have full access to all of my recommendations, as well as my Weekly Updates, Monthly Issues, Special Market Podcasts, special reports, and much more.

Click here for more information on how to join and receive my top five energy stocks today.

The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:

PepsiCo, Inc. (PEP)

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