In this article, we discuss 10 best stocks to buy amid inflation in 2022 and beyond. If you want to see more stocks in this selection, check out 5 Best Stocks to Buy Amid Inflation in 2022 and Beyond.
Situation After 2020
During 1991 and 2019, the average inflation was 2.3%. After the pandemic-induced recession in 2020, the price hikes were termed transitory by the Federal Reserve. It was blamed on the temporary disruption of supply chains and labor shortages. It seemed true as the inflation either flat-lined or slightly fell in the first few months of 2021. By mid-2021, inflation was on the rise again in the US and by the end of the year, it had exceeded 5% and the consumer price index growth had reached 7%.
Analysts and policymakers believed that 2022 would be the year when the global economy would recover from the COVID-19 recession. However, since the year began, stocks have been struggling. On top of that, during March, the consumer price index growth reached 8.5% and slightly pulled back to 8.3% in April, which was short-lived as the month of May saw it rise to a 40-year high of 8.6% according to the Bureau of Labor Statistics.
To tone down the inflation, the Federal Reserve raised the interest rates by 0.75%, which has been the most significant hike since 1994. Before the current rise in interest rates, they were increased by 0.5% in May, the highest interest hike since the dot-com bubble in early 2000. Federal Reserve Chairman Jerome Powell said, “Inflation is much too high, and we understand the hardship it is causing,” he added, “And we’re moving expeditiously to bring it back down.”
The Inflation Resistant Stocks
Year to date, the benchmark indices have run red. This steep market decline was not just limited to stocks – assets such as crypto and crude oil were also affected. As the stock indexes fall and interest rates rise, it becomes harder for investors to find companies worth investing in. Despite all that, there are still some market segments that remain stable or even profit from the rising inflation. The three main sectors benefiting from inflation are utilities, energy, and materials due to the effect on supply chains on account of the current geopolitical situation. Moreover, healthcare, as well as general and agricultural commodity sectors mostly remain unaffected by the economic conditions as their utility never decreases for people. In addition, real estate is another sector that remains mostly inflation resistant.
JPMorgan Chase & Co. (NYSE:JPM), Johnson & Johnson (NYSE:JNJ), and Procter & Gamble Company (NYSE:PG) are some of the biggest names in our list of 10 best stocks to buy amid inflation in 2022 and beyond.
Our Methodology
These stocks were picked after careful assessment of their past performance, especially during inflation periods. Some of the stocks have performed well during inflation, while others have remained stable and have low volatility. Analyst ratings and dividend payout have also been taken into consideration for our stock picks. The companies were sorted according to their hedge fund sentiment.
The hedge fund sentiment around each stock was calculated using the data of 912 elite hedge funds tracked by Insider Monkey in the first quarter of 2022.
Best Stocks to Buy Amid Inflation in 2022 and Beyond
10. Alexandria Real Estate Equities, Inc. (NYSE:ARE)
Number of Hedge Fund Holders: 35
Alexandria Real Estate Equities, Inc. (NYSE:ARE) is considered the “Pharma’s Landlord” and is one of the notable REITs to buy during inflation. 50% of the company’s rental revenue comes from investment grade or publicly traded large-cap tenants like Bristol-Myers Squibb Company (NYSE:BMY) and Moderna, Inc. (NASDAQ:MRNA). With an average lease duration of 7.3 years, Alexandria Real Estate Equities, Inc. (NYSE:ARE) should have no problem generating cash flows as the company’s tenants are reliable.
In the first quarter of 2022, Alexandria Real Estate Equities, Inc. (NYSE:ARE) outmatched its EPS estimates by $0.05 after posting an EPS of $2.05. The company also surprised its revenue estimates of $595.35 million by 3.31% after generating $615.07 million.
Hedge funds were loading up on Alexandria Real Estate Equities, Inc. (NYSE:ARE) in the first quarter of 2022. Among the hedge funds tracked by Insider Monkey, 35 funds held a combined stake worth $535.098 million in the company. In the previous quarter, 25 funds were bullish on the company with a collective stake value of $482.387 million. In Q1 2022, AEW Capital Management was the most significant shareholder of Alexandria Real Estate Equities, Inc. (NYSE:ARE), with 704,163 shares worth $141.7 million. The fund increased its holding in the company by 35% compared to the previous quarter.
JPMorgan Chase & Co. (NYSE:JPM), Johnson & Johnson (NYSE:JNJ), and Procter & Gamble Company (NYSE:PG), along with Alexandria Real Estate Equities, Inc. (NYSE:ARE) are some of the prominent stocks to buy amid inflation in 2022 and beyond.
Here is what Baron Funds had to say about Alexandria Real Estate Equities, Inc. (NYSE:ARE) in its third-quarter 2021 investor letter:
“The Fund’s unique exposure to the specialized REITs sub-industry through its investment in Alexandria Real Estate Equities, Inc. added value. Shares of life science office REIT Alexandria were up after reporting strong quarterly results. Management also provided a bright outlook for the remainder of the year as fundamentals remain excellent across the company’s real estate footprint.”
9. Corteva, Inc. (NYSE:CTVA)
Number of Hedge Fund Holders: 39
Corteva, Inc. (NYSE:CTVA) is an American agrochemical and seed company that became public in 2019. The company is expected to profit from inflation being on the rise and surges in food commodity prices. As of the first quarter of 2022, 39 hedge funds were bullish on the stock, with Diamond Hill Capital as the most prominent stakeholder.
On May 31, Corteva, Inc. (NYSE:CTVA)’s price target was raised to $72 from $64 by Deutsche Bank analyst David Begleiter. The analyst maintained a Buy rating on the company shares. Begleiter also noted that his meeting with the company’s CEO boosted his confidence in Corteva, Inc. (NYSE:CTVA) that the company is well-positioned for sustained 10%-plus EBITDA growth through 2024.
Corteva, Inc. (NYSE:CTVA)’s performance over the past few years makes it a front runner in the list of best stocks to buy during inflation. At the end of FY 2021, the company’s gross margin reached 41.10%, averaging 41.25% in the past six years. Over the past five years, the operating margin growth reached a compound annual growth rate of 22.40%. Furthermore, it appreciated to 24.03% CAGR in the last three years.
Corteva, Inc. (NYSE:CTVA) was mentioned by Aristotle Capital Management in its Q1 2022 investor letter. Here is what the fund said:
“Corteva Agriscience, one of the world’s largest seed and crop protection companies, was a primary contributor for the quarter. Due to its respected brand and the value-added benefits of its patented seeds and crop protection solutions for farmers, Corteva has been able to more than offset input cost inflation with sustainable price increases. In addition, the company’s ongoing mix shift to higher-margin, premium products, a catalyst we previously identified, is aiding both sales and profit growth. Shares were likely also buoyed by the rise in crop prices. Market participants, perhaps eager to chase short-term trends, poured into the sector. At Aristotle Capital, we look past such gyrations and, as long-term investors, do not attempt to predict short-term changes in commodity prices. We remain excited about what we view to be high-quality characteristics and fundamental improvements that permeate Corteva’s business, not the least of which include its pricing power.”
8. Archer-Daniels-Midland Company (NYSE:ADM)
Number of Hedge Fund Holders: 42
Agricultural commodities have been necessary since the beginning of time, so it’s no surprise that Archer-Daniels-Midland Company (NYSE:ADM) is on our list of stocks to buy amid inflation. One more reason this stock has garnered investors’ attention is that Ukraine’s grain production has halted due to the Russian invasion, allowing companies like Archer-Daniels-Midland Company (NYSE:ADM) to take over the market share. The 5-year monthly beta of the company is set at 0.76, which means that market volatility isn’t going to have much effect on the company.
For the first quarter of 2022, Archer-Daniels-Midland Company (NYSE:ADM) posted an EPS of $1.90, outperforming the estimates of $1.41. Furthermore, the revenues of $23.65 billion surprised analysts’ estimates of $20.61 billion by 14.73% and showed a 25% YoY growth. Archer-Daniels-Midland Company (NYSE:ADM)’s main segment, Ag Services and Oilseeds, alone accounted for 77% of the revenue generated by the company in Q1 2022. The company’s profit jumped to $1.008 billion, showing a 30% YoY growth.
On April 27, Baird analyst Ben Kallo raised Archer-Daniels-Midland Company (NYSE:ADM)’s price target to $108 from $73, maintaining an Outperform rating on the company shares. The analyst noted that the company’s robust performance shows a steady momentum towards its 2025 target of $6 to $7 EPS.
7. EOG Resources, Inc. (NYSE:EOG)
Number of Hedge Fund Holders: 49
EOG Resources, Inc. (NYSE:EOG) is an American hydrocarbon exploration company. Insider Monkey’s database shows that the company was part of 49 hedge fund portfolios in the first quarter of 2022. The most prominent stake was held by Harris Associates, with 8.6 million shares worth $1.027 billion.
Perhaps the most attractive factor of EOG Resources, Inc. (NYSE:EOG) is its dividend yield. The company has pledged 60% of its free cash flow to shareholders. The annual dividend payout of EOG Resources, Inc. (NYSE:EOG) is $3. However, it has announced a special dividend payout of $1.80 to shareholders of record as of June 14, 2022. The special dividend was distributed on June 30, 2022. Moreover, the TTM dividend payments of EOG Resources, Inc. (NYSE:EOG) are up by 800% compared to 2018.
On June 14, Barclays analyst Jeanine Wai raised the price target of EOG Resources, Inc. (NYSE:EOG) to $168 from $149, maintaining an Overweight rating on the company shares. The analyst showed a positive attitude towards the oil and gas production and exploration stocks and increased the price targets by 18% on average. Moreover, she noted “healthy upside and compelling yield despite secular headwinds.”
EOG Resources, Inc. (NYSE:EOG) is one of the stocks mentioned by Oakmark Funds in its first-quarter 2022 investor letter. Here is what the firm said:
“EOG Resources (NYSE:EOG) (+36%), was among our top contributors in the quarter as oil prices rallied due to tight supplies, which were then exacerbated by the Russian invasion of Ukraine. Although their share prices have increased considerably, both companies still look quite undervalued even using longer term oil prices in the $65-70 dollar range. Meanwhile, if times are good over the next couple of years, we expect these companies to return significant percentages of their market caps to shareholders.”
6. Eli Lilly and Company (NYSE:LLY)
Number of Hedge Fund Holders: 53
Eli Lilly and Company (NYSE:LLY) is a substantial investment candidate during the current inflationary environment and beyond. Its key therapeutic areas include diabetes, obesity, oncology, immunology, and neuroscience, which are primarily unaffected by inflation due to human needs. Eli Lilly and Company (NYSE:LLY) currently has a dividend yield of 1.28% and the last quarterly dividend of $0.98 was paid out on June 10, 2022. The company has been increasing its annual payout rate since 2015. The most recent increase of 15% was declared on December 12, 2021.
Eli Lilly and Company (NYSE:LLY)’s 2021 annual financial reports show that the company’s gross sales had a 15% YoY growth to $28.3 billion. In the United States alone, sales increased by 18%. Furthermore, the COVID-19 antibodies revenue was up by 154%. Lastly, for the past decade, the gross margin of Eli Lilly and Company (NYSE:LLY) has been 76%, compared to the industry average of 55%.
On June 1, JPMorgan analyst Chris Schott raised the price target for Eli Lilly and Company (NYSE:LLY) to $355 from $340 and retained an Overweight rating on the company shares.
Some of the best stocks to buy amid inflation in 2022 and beyond include JPMorgan Chase & Co. (NYSE:JPM), Johnson & Johnson (NYSE:JNJ), and Procter & Gamble Company (NYSE:PG), in addition to Eli Lilly and Company (NYSE:LLY).
Eli Lilly and Company (NYSE:LLY) was one of the companies discussed by Baron Funds in its Q1 2022 investor letter. Here is what the fund said:
“Eli Lilly and Company (NYSE:LLY) is a global pharmaceutical company with a diverse offering primarily focused on therapeutics. Performance was strong mostly due to consistent financial growth powered by its core diabetes (and future obesity) franchise, as well as the constant drumbeat surrounding the Alzheimer’s therapeutic market, of which Eli Lilly has one of the three potential winning blockbuster candidates in Donanemab. We retain conviction in Eli Lilly given the company’s strong long-term growth outlook.”
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Disclosure. None. 10 Best Stocks to Buy Amid Inflation in 2022 and Beyond is originally published on Insider Monkey.
