Analysts recommend these inflation stocks.
The stock market jumped when the U.S. Labor Department reported that the consumer price index grew 8.2% in the month of September, down from 9.1% in June. Inflation may have finally peaked, but the Federal Reserve is likely to continue to raise interest rates until inflation is back near its long-term target of 2%. Bank of America recently compiled a pro-inflation stock screen to identify stocks that have historically demonstrated a strong positive correlation with inflation. While other companies battle rising costs, inflation may actually help these stocks outperform. Here are seven inflation investments for investors looking to protect their portfolios.
Mosaic Co. (ticker: MOS)
Mosaic produces concentrated phosphate and potash crop nutrients for the agricultural industry. Fertilizer prices surged in 2022 after Russia invaded Ukraine. Analyst Steve Byrne says phosphate and potash prices may soon pull back from recent highs. Sulfur prices have come down significantly from peak levels, which Byrne says will help reduce costs for Mosaic in 2023. Management plans to return 100% of free cash flow to shareholders via buybacks and the stock’s 1.2% dividend. Byrne says an additional special dividend payment is also a possibility. Bank of America has a “buy” rating and $88 price target for MOS stock, which closed at $49.29 on Nov. 4.
APA Corp. (APA)
Formerly known as Apache, APA is a major U.S. oil and gas exploration and production company. Analyst Doug Leggate says APA’s production issues are improving, particularly in the North Sea. APA management has committed to returning $1.6 billion to shareholders in 2022 via dividends and buybacks. Given the favorable environment for oil and gas stocks, investors can expect that capital return program to continue in 2023. APA shares have demonstrated just how good of an inflation investment they are in 2022, gaining 85.1% year to date. Bank of America has a “buy” rating and $65 price target for APA stock, which closed at $48.99 on Nov. 4.
Applied Materials Inc. (AMAT)
Applied Materials is the world’s leading producer of wafer fabrication equipment for the semiconductor industry. Analyst Vivek Arya says growth in Applied Materials’ logic and foundry business is more than offsetting an overall slowdown in the memory market. In addition, the company’s management has accelerated its buybacks over the past year, repurchasing more than 4% of its total shares. Arya is bullish on Applied Materials’ 20% free cash flow margins and aggressive capital return program and says the company is well positioned to benefit from secular semiconductor demand growth. Bank of America has a “buy” rating and $125 price target for AMAT stock, which closed at $91.70 on Nov. 4.
Halliburton Co. (HAL)
Halliburton is a leading U.S. oilfield services company. Even after gaining 68.3% year to date as of Nov. 4, Halliburton shares remain attractively valued at just 13 times forward earnings. Analyst Chase Mulvehill says investors don’t fully appreciate Halliburton’s favorable positioning in international markets. In fact, Halliburton reported 20% international revenue growth in the first nine months of 2022 compared with 17% growth for competitor Schlumberger Ltd. (SLB). Halliburton has used its sizable free cash flow generation in the past 12 months to rapidly de-risk and deleverage its balance sheet. Bank of America has a “buy” rating and $38 price target for HAL stock, which closed at $38.48 on Nov. 4.
Advanced Micro Devices Inc. (AMD)
Semiconductor company Advanced Micro Devices produces personal computer central processing units (CPUs) and graphics processing units (GPUs), and it has been gaining market share from leader Intel Corp. (INTC) in recent years in the data center chip market. Arya says new product ramps, including 5-nanometer server chips, will help AMD maintain its data center momentum in 2023 and continue to chip away at Intel’s server chip market share. Despite AMD maintaining impressive 29% revenue growth in the third quarter, its stock is down about 57% year to date as of Nov. 4. Bank of America has a “buy” rating and $82 price target for AMD stock, which closed at $62.19 on Nov. 4.
SVB Financial Group (SIVB)
SVB Financial is the parent of Silicon Valley Bank, a commercial bank that specializes in technology, life sciences, wineries, and private equity and venture capital firms. SVB shares are down more than 68% year to date as of Nov. 4 on concerns plummeting tech sector valuations could hit SVB’s early-stage VC and PE customers. Analyst Ebrahim Poonawala says investors should be buying the dip, but SVB shares will likely not bottom until equity markets stabilize. Poonawala says peak interest rates and a bottom in tech stocks would be a bullish combination for SVB. Bank of America has a “buy” rating and $335 price target for SIVB stock, which closed at $213.20 on Nov. 4.
Tapestry Inc. (TPR)
Tapestry is the parent company of luxury brands Coach, Kate Spade New York and Stuart Weitzman. The company produces accessories, handbags, footwear, fragrances and other products. Rising prices will likely not deter Tapestry’s high-end customer base. Analyst Lorraine Hutchinson says Tapestry plans to return $3 billion to shareholders by fiscal 2025. Those returns include the stock’s 3.7% dividend, highest of any stock on this list. Hutchinson says Coach’s global handbag average unit retail price is up 30% from 2019 levels, demonstrating the brand’s pricing power. Bank of America has a “buy” rating and $50 price target for TPR stock, which closed at $32.46 on Nov. 4.
