13 Stocks to Buy Amid Rising Inflation

Published on June 22, 2021 at 1:11 pm by Usman Kabir in Hedge Funds, News

In this article, we discuss the 13 stocks to buy amid rising inflation. If you want to skip our detailed analysis of these stocks, go directly to the 5 Stocks to Buy Amid Rising Inflation.

The increase in prices of items because of supply chain problems and rising demand have led to fears of inflation on Wall Street, with many top hedge funds trimming their stakes in growth sectors like technology over the previous quarter to bet on companies that have a competitive advantage in segments like real estate, consumer staples, and others. According to a survey by the Federal Reserve Bank of New York, inflation forecasts have hit eight-year highs.

Inflation does not necessarily spell doom and gloom for the stock world. In fact, legendary investors like Warren Buffett have over the years mastered the art of deftly exploiting the inflationary scenario to their advantage. An important piece of advice that Buffett has for young investors as they navigate inflationary tailwinds is the plea to focus on companies that generate cash and have pricing powers to handle more business without spending a lot, which Buffett has historically favored as he built his portfolio over the years.

Amid the uncertainty and stock volatility that has clouded the market in this scenario, investors have been flocking towards safe and solid bets with pricing powers that can weather through the storm. Some of the good options in this regard are The Procter & Gamble Company (NYSE: PG), Adobe Inc. (NASDAQ: ADBE), and Zoetis Inc. (NYSE: ZTS). The Procter & Gamble Company (NYSE: PG) recently projected that organic sales would grow up to 6% this year and translate into core earnings per share growth of up to 10%.

Adobe Inc. (NASDAQ: ADBE), the California-based software firm, is also a top pick for investors who want some safeguards against inflation. Shantanu Narayen, the CEO of the firm, recently said that the firm expected to take strong advantage of rising consumer demand and enterprise spending in the coming weeks and months. Since the company is based in North America, which has been recovering from the COVID-19 crisis faster than other areas of the world because of the smooth vaccine rollout, the firm is uniquely placed to benefit from the recovery.

Another possible hedge against rising prices and uncertainty is Zoetis Inc. (NYSE: ZTS), the New Jersey-based drug maker that has a consensus bull rating on Wall Street but has not attracted much investor interest. On May 10, investment bank JP Morgan maintained an Overweight rating on the stock and raised the price target $205 from $200. Truist, another investment advisory, also raised the price target on the firm to $180 from $170, implying an upside potential of close to 5%.

The finance world has also been breathing a sigh of relief as inflation disrupts the ominous growth of technology stocks. The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.

Our Methodology

These stocks were selected keeping in mind the basic business fundamentals, the pricing power they offer, and the margins they hold over peers in the marketplace. We also consulted a study by investment bank Goldman Sachs published in April, which highlighted a few stocks that it thought would perform well during inflation, backing the companies with high pricing powers to come out on top as inflation hovered around 2% till at least 2023. Companies with higher pricing powers can pass along additional costs in times of inflation to consumers without damaging their sales too much, thereby protecting their earnings while firms who burn cash face crunch times.

Photo by Sean Robertson on Unsplash

With this context in mind, here is our list of the 13 stocks to buy amid rising inflation.

Stocks to Buy Amid Rising Inflation

13. Newmont Corporation (NYSE: NEM)

Number of Hedge Fund Holders: 43

Newmont Corporation (NYSE: NEM) is a mining company based in Colorado. It explores and produces gold, zinc, silver, copper, and other metals. The mining interests of the company are spread over North America, South America, Australia, and Africa. It is the largest gold miner in the world and ranks thirteenth on our list of 13 stocks to buy amid rising inflation. The company’s shares have offered investors returns exceeding 7.6% over the course of the past twelve months.

Gold stocks like Newmont Corporation (NYSE: NEM) have been some of the best performers in the market over the past few weeks as inflation fears cloud over growth stocks. On May 17, the stock jumped 4.5% as the firm announced that it had completed the takeover of GT Gold Corp.

At the end of the first quarter of 2021, 43 hedge funds in the database of Insider Monkey held stakes worth $994 million in Newmont Corporation (NYSE: NEM), down from 50 in the preceding quarter worth $1.2 billion.

In its Q1 2020 investor letter, First Eagle Investment Management, an asset management firm, highlighted a few stocks and Newmont Corporation (NYSE: NEM) was one of them. Here is what the fund said:

“The gold price helped support the stock price of Newmont Corporation, a Colorado-based miner with, in our view, highquality assets located in favorable mining jurisdictions in North America, South America, Australia and Africa. With what we consider an impressive portfolio of assets, strong management team, solid balance sheet and history of generating free cash flow, Newmont appears well positioned to withstand the economic disruptions related to the coronavirus pandemic.”

12. AT&T Inc. (NYSE: T)

Number of Hedge Fund Holders: 63

AT&T Inc. (NYSE: T) is a multinational telecommunication firm that operates from Texas. It is placed twelfth on our list of 13 stocks to buy amid rising inflation. Utility stocks are a solid hedge against inflation as they have strong business fundamentals and pay regular dividends. As 5G network coverage increases, telecom stocks like AT&T have lots of room to climb higher. The firm also stands to benefit from increased government spending on telecom infrastructure in the coming months.

On June 4, AT&T Inc. (NYSE: T) announced that it had teamed up with Cisco Systems to provide cloud communication services to as many as 1 million customers in the next five years. The cloud services aim to help people with hybrid work structures as the pandemic wanes.

At the end of the first quarter of 2021, 63 hedge funds in the database of Insider Monkey held stakes worth $2.7 billion in AT&T Inc. (NYSE: T), up from 58 in the preceding quarter worth $1 billion.

11. Medical Properties Trust, Inc. (NYSE: MPW)

Number of Hedge Fund Holders: 23

Medical Properties Trust, Inc. (NYSE: MPW) is an Alabama-based real estate investment trust that focuses on healthcare facilities. It is placed eleventh on our list of 13 stocks to buy amid rising inflation. The company’s shares have returned more than 8% to investors over the past year. Real estate investment trusts, with regular earnings and solid dividends, are a top option for those who want to diversity their portfolio to protect against inflation.

On May 26, Medical Properties Trust, Inc. (NYSE: MPW) declared a quarterly dividend of $0.28 per share, in line with previous. The forward yield was 5.25%.

At the end of the first quarter of 2021, 23 hedge funds in the database of Insider Monkey held stakes worth $271 million in Medical Properties Trust, Inc. (NYSE: MPW), up from 16 in the preceding quarter worth $258 million.

10. Dollar General Corporation (NYSE: DG)

Number of Hedge Fund Holders: 52

Dollar General Corporation (NYSE: DG) operates a chain of variety stores across the United States. It is placed tenth on our list of 13 stocks to buy amid rising inflation. The stores are discount retailers that market consumable products. The firm has a presence in 46 states in the US and operates more than 17,000 stores under the Dollar General brand. The stock has returned more than 12% to investors over the past year. As inflation increases, consumer interest in discount retailers is rising and the company stands to benefit from this shift.

On June 2, investment advisory Evercore maintained an Outperform rating on Dollar General Corporation (NYSE: DG) stock with a price target of $230, calling the company a quality compounder that gained customers since the coronavirus crisis.

At the end of the first quarter of 2021, 52 hedge funds in the database of Insider Monkey held stakes worth $1.6 billion in Dollar General Corporation (NYSE: DG), down from 57 in the preceding quarter worth $2 billion.

Just like The Procter & Gamble Company (NYSE: PG), Adobe Inc. (NASDAQ: ADBE), and Zoetis Inc. (NYSE: ZTS), Dollar General Corporation (NYSE: DG) is one of the stocks to buy amid rising inflation.

In its Q1 2021 investor letter, Polen Capital, an asset management firm, highlighted a few stocks and Dollar General Corporation (NYSE: DG) was one of them. Here is what the fund said:

“We have eliminated Dollar General to fund the purchase of Amazon, which we consider a superior investment opportunity. We feel Dollar General has been an excellent “Safety” holding for us, especially in 2020. Since our initial purchase in July 2016, Dollar General shares have more than doubled, beating the S&P 500 and slightly underperforming the Index (our actual returns were higher, as we had added to the position on a drawdown soon after our initial purchase).

During the COVID drawdown in early 2020, Dollar General declined 10% versus 25% for the Index and 29% for the S&P 500. We had expected the company to grow its store footage 5% per year with same-store sales increasing 2-3% and yielding revenue growth of 7-8% over the long term. Slight margin expansion would lead to 10%+ EPS growth, according to our research.

2020 could have pulled forward more than three years of revenue and earnings growth into a single year. The pandemic and quarantining led people to stock up on everyday consumables, and stimulus checks and extended and elevated unemployment benefits have allowed Dollar General customers to spend more. In fact, the company recently reported full-year 2020 results in which revenue grew 22% and EPS grew 60%. These results included over 200 basis points of margin expansion off a low base of 8.3% operating margins in 2019. This compares to margin expansion of tens of basis points in typical market environments. Dollar General now has over 17,000 stores. There could be more than three years of approximately 5% annual square-footage growth left before maturing at over 20,000 stores. Same-store sales growth could be in the 3-4% range for some time, and we think the company remains extremely well run. We simply believe our investment in Amazon is a superior alternative.”

9. Activision Blizzard, Inc. (NASDAQ: ATVI)

Number of Hedge Fund Holders: 76

Activision Blizzard, Inc. (NASDAQ: ATVI) is a holding company that develops and markets different types of interactive entertainment, including video games. It is ranked ninth on our list of 13 stocks to buy amid rising inflation. Some of the famous offerings owned by the company include Call of Duty, World of Warcraft, Diablo, Hearthstone, Overwatch, and Candy Crush, among others. As inflation rises, people are more likely to prefer indoor entertainment to outdoor experiences and the firm could benefit from this change.

On May 11, investment advisory BMO Capital upgraded Activision Blizzard, Inc. (NASDAQ: ATVI) stock to Outperform from Market Perform, raising the price target to $116 from $104, implying an upside potential of 22%.

At the end of the first quarter of 2021, 76 hedge funds in the database of Insider Monkey held stakes worth $3.5 billion in Activision Blizzard, Inc. (NASDAQ: ATVI), down from 81 in the preceding quarter worth $3.7 billion.

Just like The Procter & Gamble Company (NYSE: PG), Adobe Inc. (NASDAQ: ADBE), and Zoetis Inc. (NYSE: ZTS), Activision Blizzard, Inc. (NASDAQ: ATVI) is one of the stocks to buy amid rising inflation.

In its Q1 2021 investor letter, Cooper Investors, an asset management firm, highlighted a few stocks and Activision Blizzard, Inc. (NASDAQ: ATVI) was one of them. Here is what the fund said:

“The portfolio established a position in video game publisher Activision Blizzard. As a watchlist company we have followed Activision for several years. As a reminder the role of the watchlist is to allow us to focus on a select group of companies where we seek to observe important signals around either value latency, industry trends or management behaviour that portend attractive investment propositions.

Technology can often play a disruptive role in content, however video games are a clear beneficiary of technology, both in terms of more immersive and realistic gaming experiences as well as the monetisation opportunities this creates.

In order to benefit from these trends, video game publishers must be owners of unique IP. Activision Blizzard fits this bill perfectly boasting a portfolio which includes franchises such as Call of Duty, World of Warcraft and Diablo just to name a few.

The business is run by CEO Bobby Kotick, who together with Chairman Brian Kelly purchased the foundation assets for the company for US$400k in the early 1990s. Today Activision has a market capitalisation of over US$70bn. Over the last few years Bobby and his management team have refocused resources onto their best IP, with the goal of capitalising on the aforementioned industry tailwinds.

We saw the benefits of this in 2020 with the release of Call of Duty Mobile and Free-to-Play versions (with in game micro transactions) complimenting the traditional core console game. Engagement increased materially and due to the very favourable economics of content publishing, Operating Income more than doubled for the Call of Duty Franchise. Even adjusting for the impact of lockdowns, this is a phenomenal outcome.

Activision has 3-4 key pieces of IP with which they plan to repeat this playbook over the next couple of years. If they can replicate the success of Call of Duty, even in part, we see material upside to the free cash flow power of the business. Further, revenue sources are broadening which will move the profile away from a traditional lumpy annual release cycle of the old video game model towards one of a more recurring nature. This will transition Activision from a publishing to a services business, likely attracting a higher multiple than the current mid-low 20x FCF which is broadly in line with the market. To summarise, we see significant value latency and a pathway to double digit returns over the medium term.”

8. Etsy, Inc. (NASDAQ: ETSY)

Number of Hedge Fund Holders: 53

Etsy, Inc. (NASDAQ: ETSY) is an ecommerce company that is famous for prioritizing the sale of craft items. It is placed eighth on our list of 13 stocks to buy amid rising inflation. The company’s shares have offered investors returns exceeding 79% over the course of the past twelve months. The company markets various seller services and tools. Amid rising inflation, the stock could be a solid bet as it is a market leader with a trusted brand name in the handmade crafts market, which is poised for growth in an inflationary scenario.

On June 7, investment advisory Atlantic Equities started coverage on Etsy, Inc. (NASDAQ: ETSY) stock with an Overweight rating and a price target of $200, implying upside potential of over 20%, calling the firm a differentiated stock in digital plays.

Out of the hedge funds being tracked by Insider Monkey, New York-based investment firm Renaissance Technologies is a leading shareholder in Etsy, Inc. (NASDAQ: ETSY) with 2.3 million shares worth more than $465 million.

Just like The Procter & Gamble Company (NYSE: PG), Adobe Inc. (NASDAQ: ADBE), and Zoetis Inc. (NYSE: ZTS), Etsy, Inc. (NASDAQ: ETSY) is one of the stocks to buy amid rising inflation.

In its Q1 2021 investor letter, Polen Capital, an asset management firm, highlighted a few stocks and Etsy, Inc. (NASDAQ: ETSY) was one of them. Here is what the fund said:

“Etsy continued to be a top contributor in the Portfolio during the first quarter. Etsy experienced record levels of demand in 2020. Throughout the beginning of this year, the business has continued to see accelerated growth trends. The company’s recently announced fourth quarter results provided numerous data points that highlight Etsy’s success in both broadening and deepening the relationship it has with buyers and sellers on its platform. In fact, Etsy now stands as the fourth largest e commerce site in the U.S. Repeat buyers have grown nearly 100% year-over-year, despite mask sales, which grew rapidly at the onset of the pandemic, shrinking to less than 5% of sales.

We continue to believe Etsy remains in the early stages of growing out its platform.

We remain confident in its ability to compound its value for shareholders at an attractive rate going forward.”

7. Philip Morris International Inc. (NYSE: PM)

Number of Hedge Fund Holders: 48

Philip Morris International Inc. (NYSE: PM) is a company that makes and sells cigarettes in more than 180 countries across the world. It is ranked seventh on our list of 13 stocks to buy amid rising inflation. Some of the famous brands it owns include Marlboro, Parliament, Bond Street, Chesterfield, L&M, Lark, and Philip Morris, among others. The company is one of the largest tobacco firms in the world and stands to benefit from an increase in inflation as it has strong pricing power and a brand name it can count on to deliver results in a crisis.

On May 7, news reports suggested that Philip Morris International Inc. (NYSE: PM) would stop selling cigarettes in Japan within the next decade. Instead, the company would focus on ‘heat not burn’ products, a market segment which the firm already controls.

Out of the hedge funds being tracked by Insider Monkey, London-based investment firm Fundsmith LLP is a leading shareholder in Philip Morris International Inc. (NYSE: PM) with 19.3 million shares worth more than $1.7 billion.

Just like The Procter & Gamble Company (NYSE: PG), Adobe Inc. (NASDAQ: ADBE), and Zoetis Inc. (NYSE: ZTS), Philip Morris International Inc. (NYSE: PM) is one of the stocks to buy amid rising inflation.

In its Q4 2020 investor letter, Fundsmith LLP highlighted a few stocks and Philip Morris International Inc. (NYSE: PM) was one of them. Here is what the fund said:

“We are impressed with Philip Morris’s development of Reduced Risk Products or RRPs, most notably its heat not burn system iQOS. It seems we are not the only ones to view it this way as it was recently included in the Dow Jones Sustainability North America Index for the first time. For the moment the shares are weighed down by COVID related disruption to some of its markets and simple prejudice which seems to prevent some commentators from weighing the benefits the RRPs bring against the obvious fact that it is a tobacco company.”

6. Oracle Corporation (NYSE: ORCL)

Number of Hedge Fund Holders: 52

Oracle Corporation (NYSE: ORCL) is a software company that markets enterprise information technology products. It is placed sixth on our list of 13 stocks to buy amid rising inflation. The stock has offered investors returns exceeding 40% over the course of the past twelve months. The firm has developed a name for itself in the business world and could very well raise prices without affecting the core business to offset inflation-related costs. Some of the services the firm offers include cloud, license, hardware, and support, among others.

Oracle Corporation (NYSE: ORCL) is a good option for income investors as the firm pays a regular dividend. On June 15, the company declared a quarterly dividend of $0.32 per share, in line with previous. The forward yield was 1.57%.

At the end of the first quarter of 2021, 52 hedge funds in the database of Insider Monkey held stakes worth $2.8 billion in Oracle Corporation (NYSE: ORCL), the same as in the preceding quarter worth $2.4 billion.

Just like The Procter & Gamble Company (NYSE: PG), Adobe Inc. (NASDAQ: ADBE), and Zoetis Inc. (NYSE: ZTS), Oracle Corporation (NYSE: ORCL) is one of the stocks to buy amid rising inflation.

Here is what Ariel Investments has to say about Oracle Corporation (NYSE: ORCL) in its Q1 2021 investor letter:

“A temporary factor might be a downturn in the high-yield bond market driving up LBO financing costs for the decline in 2021 GAAP revenue for Oracle Corporation (ORCL) due to a change in accounting methods. In all these examples, stock prices were driven well-below our calculations of intrinsic value. We invested in each company with good outcomes. Later, we will offer instances when this strategy is not successful.”

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