In this article, we will look at 10 best stocks to buy to protect against inflation in 2022 and beyond. If you want to skip reading about what sectors have proven to be resilient to inflation in the past and how inflation is progressing in 2022, you can go directly to 5 Best Stocks to Buy to Protect Against Inflation in 2022 and Beyond.
CPI For May 2022
On June 10 the U.S. Bureau of Labor Statistics released data that tracked the consumer price index for May 2022. The CPI for all urban consumers marked its largest 12-month increase since December 1981, rising by 8.6% year-over-year in May 2022. Moreover, the all items less food and energy index rose 6.0% year-over-year. The energy index recorded a 34.6% increase year-over-year, the largest 12-month increase since September 2005. The food index rose 10.1% year-over-year, the largest 12-month increase since March 1981.
The Fed Hikes Interest Rates
In its attempts to combat inflation, this June, the Fed announced another rate hike and raised interest rates by 75 basis points bringing its benchmark Federal Funds rate to a range of 1.5% to 1.75%. This is the largest interest rate increase since 1994 and the Fed will continue to raise interest rates in 2022 to curb inflation, which is currently at a 40-year high.
Where To Put Your Money
According to research conducted by Hartford Funds, which examined inflationary periods from 1973 to 2021, equities outperformed inflation 90% of the time when the average inflation rate was below 3% and rising. However, as soon as inflation exceeded the 3% mark in history, the returns of equities suffered.
Rising interest rates and skyrocketing inflation can leave investors troubled about where to put their money to hedge against inflation. Historically, certain sectors have proven to be more resilient to inflation and have helped investors navigate through volatile times. These sectors, according to the study conducted by Hartford Funds, were primarily energy, equity REITs, and metals & mining. Hartford Funds found that the energy sector outran inflation 71% of the time, returning 9.0% per year on average during the forecasted period. Equity REITs beat inflation 67% of the time and delivered an average annual return of 4.7% between 1973 and 2021. Metals and mining companies were found to have outperformed inflation 47% of the time and delivered a median annual return of 8.0%.
Synovus also listed sectors it believes can be good inflation investments. Synovus found that the consumer staples, utilities, gold mining, and real estate sectors were the winning sectors for inflationary times. Dr. Derek Horstmeyer, a professor of finance at George Mason University’s Business School, conducted a study to find stocks that demonstrated inflation-proof abilities. Dr. Horstmeyer collected data about 50-year returns of public companies listed across U.S. exchanges, and also took into account the CPI for those years. He found that the inflation rate recorded a two-fold increase between three time periods: March 1973 to May 1975, April 1978 to September 1980, and February 2021 to March 2022. According to Dr. Horstmeyer, the best-performing sector during inflationary periods was the energy sector, which posted median annualized returns of 18% over the study period, followed by the materials sector which recorded a median annual return of 16.81% between 1973 and 2022.
Some of the best stocks to hedge against inflation include Newmont Corporation (NYSE:NEM), Exxon Mobil Corporation (NYSE:XOM), and The Coca-Cola Company (NYSE:KO).
Photo by Viki Mohamad on Unsplash
Our Methodology
To determine the 10 best stocks to buy to protect against inflation in 2022 and beyond, we did a careful assessment of the sectors that have demonstrated resilience to rising inflation in the past. We identified companies that have established their position in the market and have managed to maintain consumer demand, even during inflationary periods, and hence their profitability. Along with each stock we have included the analyst and investor sentiment around it. These stocks are ranked in increasing order of hedge fund holders.
10 Best Stocks to Buy to Protect Against Inflation in 2022 and Beyond
10. Realty Income Corporation (NYSE:O)
Number of Hedge Fund Holders: 22
Realty Income Corporation (NYSE:O) is structured as a retail REIT and has ownership interests in more than 11,200 commercial real estate properties that cover 70 distinct industries. The company’s retail properties are leased to over 1000 clients across the United States, Puerto Rico, the United Kingdom, and Spain. The company is officially known as the monthly dividend company and has issued 624 consistent monthly dividends over its 53 years of operation. As of June 17, the stock has a forward dividend yield of 4.62%.
Realty Income Corporation (NYSE:O) is among the stocks to consider investing in during inflationary periods because the company is not vulnerable to supply chain constraints, and has maintained a reputation for growing its monthly dividends regardless of what economic cycle the world is in. On June 14, Realty Income Corporation (NYSE:O) increased its monthly dividend to $0.2475 per share from $0.247 per share. This marks the 116th dividend increase since the company went public in 1994. The common stock monthly dividend is payable on July 15, 2022, to investors of record at the close of business on July 1, 2022.
At the close of Q1 2022, 22 hedge funds disclosed ownership of stakes in Realty Income Corporation (NYSE:O). The total stakes of these funds were valued at $284.88 million, down from $398.85 million in the previous quarter with 30 positions.
As of March 31, Glendon Capital Management is the most bullish hedge fund on Realty Income Corporation (NYSE:O) with stakes worth $128.68 million.
Like Newmont Corporation (NYSE:NEM), Exxon Mobil Corporation (NYSE:XOM), and The Coca-Cola Company (NYSE:KO), Realty Income Corporation (NYSE:O) is an inflation-proof investment option for investors looking to shelter from inflation in 2022 and beyond.
9. Prologis, Inc. (NYSE:PLD)
Number of Hedge Fund Holders: 37
Prologis, Inc. (NYSE:PLD) is a global leader in logistics real estate with a focus on high-barrier, high-growth markets. On April 19, Prologis, Inc. (NYSE:PLD) announced earnings for the fiscal first quarter of 2022. The company reported an FFO of $1.09, ahead of expectations by $0.02. The company generated a revenue of $1.08 billion, up 5.40% year over year, and missed expectations by $12.36 million.
Prologis, Inc. (NYSE:PLD) is another REIT to consider investing in for an inflation hedge because the company is an industry leader and also a regular dividend payer. On May 5, the company announced that its board of directors have declared a quarterly cash dividend of $0.79 per share, payable on June 30 for investors of record on June 16. As of June 17, the stock has a forward yield of 2.83%.
On June 13, Prologis, Inc. (NYSE:PLD) announced that it has successfully entered into a merger agreement with Duke Realty (NYSE:DRE) by which Prologis, Inc. (NYSE:PLD) will acquire Duke Realty (NYSE:DRE) for an all-stock transaction valued at $26 billion. With this move, Prologis, Inc. (NYSE:PLD) will expand its footprint further in Southern California, New Jersey, South Florida, Chicago, Dallas, and Atlanta, therefore maintaining its industry-leading position. The merger is expected to reach completion by Q4 2022.
On June 6, Wells Fargo analyst Blaine Heck lowered his price target on Prologis, Inc. (NYSE:PLD) to $160 from $184 but maintained an Overweight rating, equivalent to Buy, on the shares.
Hedge funds are raising their stakes in Prologis, Inc. (NYSE:PLD). At the end of the first quarter of 2022, 37 hedge funds were long Prologis, Inc. (NYSE:PLD) with stakes worth $546.54 million. This is compared to 37 positions in the previous quarter with stakes worth $544.35 million.
As of March 31, AEW Capital Management is the top shareholder in Prologis, Inc. (NYSE:PLD) owning over 2.02 million shares of the company. This amounts to a stake of $326.89 million.
8. Marathon Oil Corporation (NYSE:MRO)
Number of Hedge Fund Holders: 43
Oil and gas stocks are rallying and the energy sector has shown to be inflation-proof in the past which is why Marathon Oil Corporation (NYSE:MRO) should be on investors’ radars in 2022 when inflation is reaching record-highs. On May 4, Marathon Oil Corporation (NYSE:MRO) reported earnings for the fiscal first quarter of 2022. The company registered an EPS of 1.02, beating estimates by $0.04. The company’s revenue for the quarter came in at $1.75 billion, up 63.68% year over year but missed expectations by $80.43 million.
Other salient features that make Marathon Oil Corporation (NYSE:MRO) a suitable investment option are the company’s undervalued nature and dividend policies. As of June 17, Marathon Oil Corporation (NYSE:MRO) has a forward PE ratio of 5.19, a trailing twelve-month dividend yield of 1.01%, and has gained 86.42% over the past twelve months.
This June, Barclays analyst Jeanine Wai raised her price target on Marathon Oil Corporation (NYSE:MRO) to $37 from $30 and reiterated an Overweight rating on the shares. The analyst sees a “healthy upside and compelling yield despite secular headwinds.”
Hedge funds are bullish on Marathon Oil Corporation (NYSE:MRO). At the close of Q1 2022, 43 hedge funds disclosed ownership of stakes in Marathon Oil Corporation (NYSE:MRO). The total value of these stakes was $1.50 billion, up from $969.10 million in the prior quarter with 40 positions. The hedge fund sentiment for the stock is positive.
In the first quarter of 2022, Fisher Asset Management raised its stakes by 2% in Marathon Oil Corporation (NYSE:MRO) bringing them to $217.05 million. Fisher Asset Management is the most prominent shareholder in the company.
In addition to Newmont Corporation (NYSE:NEM), Exxon Mobil Corporation (NYSE:XOM), and The Coca-Cola Company (NYSE:KO), Marathon Oil Corporation (NYSE:MRO) has managed to sustain consumer demand and hence retain its profitability even during skyrocketing inflation.
7. Barrick Gold Corporation (NYSE:GOLD)
Number of Hedge Fund Holders: 45
Gold, and more particularly gold stocks, are investors’ sanctuary during periods of rising inflation. Barrick Gold Corporation (NYSE:GOLD) is one of the largest gold mining companies in the world with strong balance sheets and production numbers, which makes it rank among the best stocks to buy to protect against inflation. The company has ownership interests in producing gold mines that are located in Argentina, Canada, Côte d’Ivoire, the Democratic Republic of Congo, Dominican Republic, Mali, Tanzania, and the United States.
On May 4, Barrick Gold Corporation (NYSE:GOLD) announced earnings for the first quarter of fiscal year 2022. The company reported a revenue of $2.85 billion, down 3.48% year over year, but ahead of expectations by $105.78 million. The company registered an EPS of $0.26 and outperformed consensus by $0.02. Barrick Gold Corporation (NYSE:GOLD) reported Q1 gold production of 990,000 ounces, down 10.1% year over year from 1.1 million ounces, due to lower output from its Carlin and Cortez mines in Nevada. However, Barrick Gold Corporation (NYSE:GOLD) reiterated its fiscal year 2022 gold production guidance and still forecasts gold production of 4.2 million to 4.6 million ounces.
Along with its earnings release, Barrick Gold Corporation (NYSE:GOLD) increased its quarterly cash dividend by two-folds to $0.20 per share from $0.10. The dividend is payable on June 15 to investors of record on May 27. As of June 17, Barrick Gold Corporation’s (NYSE:GOLD) year-to-date returns are up 5.74% and the stock has a forward yield of 2.0%.
On April 21, Barclays analyst Matthew Murphy raised his price target on Barrick Gold Corporation (NYSE:GOLD) to $28 from $26 and maintained an Overweight rating on the shares.
At the close of Q1 2022, 45 hedge funds were long Barrick Gold Corporation (NYSE:GOLD) with stakes worth $1.37 billion. This is compared to 46 hedge funds in Q4 2021 with stakes worth $958.53 million. As of March 31, First Eagle Investment Management is the dominating stakeholder in Barrick Gold Corporation (NYSE:GOLD) with stakes worth $653.26 million.
Here is what ClearBridge Investments had to say about Barrick Gold Corporation (NYSE:GOLD) in its first-quarter 2022 investor letter:
“Also within the structural bucket, we have selectively added to our commodity exposure with the purchase of Barrick Gold (NYSE:GOLD). Canadian mining company Barrick Gold is a play on operating improvements. The company has aggressively delevered its balance sheet and reduced capex spending to a lower level more permanently, directing its healthy free cash flow to dividends and buybacks.”
6. Chevron Corporation (NYSE:CVX)
Number of Hedge Fund Holders: 53
Chevron Corporation (NYSE:CVX) is another attractive energy stock that can help investors steer smoothly through inflation. Hedge funds are raising their stakes in Chevron Corporation (NYSE:CVX). Insider Monkey found 53 hedge funds bullish on Chevron Corporation (NYSE:CVX) with stakes worth $27.99 billion in Q1 2022. This is compared to 53 hedge funds in Q4 2021 with stakes worth $6.50 billion.
On June 9, Credit Suisse analyst Manav Gupta raised his price target on Chevron Corporation (NYSE:CVX) to $202 from $190 and reiterated an Outperform rating, equivalent to Buy, on the shares.
This April, Chevron Corporation (NYSE:CVX) posted gains for the first quarter of fiscal year 2022. The company generated a revenue of $54.37 billion, up 69.76% year over year, and beat expectations by $812.65 million. The company registered an EPS of $3.36, missing estimates by $0.08. The company also reportedly generated $7.0 billion in free cash flow for the quarter, roughly 2.3% of its current market cap which as of June 17 sits at $329.20 billion.
As of June 17, Chevron Corporation (NYSE:CVX) has a forward PE ratio of 9.11, a dividend yield of 3.65%, and has gained 38.13% over the past twelve months.
Warren Buffett’s Berkshire Hathaway is the leading shareholder in Chevron Corporation (NYSE:CVX) as of Q1 2022. In the first quarter of 2022, Berkshire Hathaway raised its stakes in Chevron Corporation (NYSE:CVX) by 317% bringing them to $25.91 billion.
ClearBridge Investments mentioned Chevron Corporation (NYSE:CVX) in its “Large Cap Value Strategy” first-quarter 2022 investor letter. Here is what the firm said:
“The energy sector, which led a strong market in 2021, generated even more dramatic relative performance in the quarter, advancing 39% and leading the benchmark Russell 1000 Value Index. Years of restrained investment in the energy sector, combined with a strong post-pandemic recovery, contributed to the higher commodity prices. The upward pressure escalated with the Russian invasion of Ukraine. Our energy holding Chevron (NYSE:CVX) benefited from higher commodity prices and was among the top contributors to first-quarter performance.”
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Disclose. None. 10 Best Stocks to Buy to Protect Against Inflation in 2022 and Beyond is originally published on Insider Monkey.
