In this article, we discuss 11 best stagflation stocks to buy now. If you want to see more stocks in this selection, check out 5 Best Stagflation Stocks To Buy.
Stagflation is characterized by a persistent combination of elevated inflation, simultaneous peak unemployment, and sluggish demand. Initially considered an unfamiliar concept, economists came to recognize the reality of stagflation following the ‘Great Inflation’ of the 1970s. This phenomenon revealed that, contrary to the conventional expectation of unemployment and inflation moving in opposite directions, stagflation can adversely impact an economy. Daniel Dusina, director of investments at Blue Chip Partners, describes stagflation as:
“Stagflation is difficult to tackle from a policy perspective, as actions that counteract inflation (i.e., higher interest rates, decreasing the money supply) may exacerbate the level of unemployment and slow the economy further. The three components of stagflation (high inflation, high unemployment, weak demand) have an impact on the revenue, profitability and valuation of businesses, which in turn affects the price an investor is willing to pay for a share.”
Until recently, Wall Street experts considered stagflation as the predominant risk for the global economy in 2023. They were of the opinion that any upswing in equity markets appeared unsustainable in the aftermath of the significant selloff in 2022. Seven months following the initial estimate of Q1 2023 GDP growth, which was subsequently revised upward by 1.1%, concerns about stagflation in the United States were alleviated by the recent Q3 2023 GDP growth estimates. According to the Bureau of Economic Analysis, annualized real GDP growth surged to 5.2% in the third quarter of 2023, signifying the swiftest rate of expansion since Q4 2021.
Stagflation tends to favor defensive companies, those providing essential products and services for people’s daily needs. Consequently, the share prices of such companies often demonstrate resilience despite a slowing macroeconomic environment. In quantitative terms, defensive sectors typically exhibit a market beta of under 1, indicating outperformance when the benchmark index declines. On the other hand, cyclical sectors have a market beta of more than 1, signaling underperformance when the index falls. Defensive sectors that perform well in stagflation economies include utilities, energy, consumer staples, healthcare, and real estate. Conversely, cyclical counterparts like technology, industrials, and financials may face challenges during such economic conditions. With that said, it’s worth noting that certain stocks, including household names like Costco Wholesale Corporation (NASDAQ:COST), Walmart Inc. (NYSE:WMT), and Berkshire Hathaway Inc. (NYSE:BRK-B), are notably more secure against periods of stagflation that others.
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Our Methodology
In compiling the best stagflation stocks to buy, we have chosen stocks characterized by their defensive attributes, robust market visibility, resilient dividend profiles, and a longstanding history of navigating through volatile market environments. Our evaluation is based on hedge fund sentiment derived from Insider Monkey’s extensive database, tracking 910 elite hedge funds as of the conclusion of the third quarter of 2023. Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here). That’s why we pay very close attention to this often-ignored indicator.
11. General Mills, Inc. (NYSE:GIS)
Number of Hedge Fund Holders: 39
General Mills, Inc. (NYSE:GIS) is a prominent American multinational company renowned for its production and marketing of branded processed consumer foods, widely distributed through retail channels. The company’s roots can be traced back to its establishment near Saint Anthony Falls in Minneapolis, along the Mississippi River, where it initially gained prominence as a significant flour milling operation.
On September 21, RBC Capital adjusted its price target for General Mills, Inc. (NYSE:GIS), reducing it from $78 to $76 while maintaining a Sector Perform rating on the stock. In their research note, the firm characterized the company’s Q1 results as relatively straightforward, with challenges in the Pet segment offset by strong performance in the Foodservice and International sectors. Additionally, the firm maintains its expectations for General Mills, Inc. (NYSE:GIS), anticipating organic net sales growth of 3% and EPS growth of 4% for FY24.
As of the end of Q3 2023, 39 hedge fund investors had allocated their investments to General Mills, Inc. (NYSE:GIS), as indicated by the Insider Monkey database. The largest shareholder of General Mills, Inc. (NYSE:GIS) was Millennium Management, with a holding of approximately 1.6 million shares valued at about $102.8 million.
Much like Costco Wholesale Corporation (NASDAQ:COST), Walmart Inc. (NYSE:WMT), and Berkshire Hathaway Inc. (NYSE:BRK-B), General Mills, Inc. (NYSE:GIS) ranks as one of the best stagflation stocks to buy.
10. Colgate-Palmolive Company (NYSE:CL)
Number of Hedge Fund Holders: 52
Colgate-Palmolive Company (NYSE:CL) is a multinational corporation headquartered in Midtown Manhattan, New York City, on Park Avenue. The company specializes in the manufacturing, distribution, and provision of a diverse range of household, healthcare, personal care, and veterinary products.
On September 13, the company declared a quarterly dividend of $0.48 per share, demonstrating continuity with its previous dividend. Ranking as one of the best stagflation stocks to buy, Colgate-Palmolive Company (NYSE:CL) has sustained a streak of dividend increases for 61 consecutive years. As of December 20, the stock’s dividend yield was recorded at 2.46%.
According to the Insider Monkey database for the third quarter of 2023, out of 910 profiled hedge funds, 52 had a stake in Colgate-Palmolive Company (NYSE:CL). The largest stockholder was First Eagle Investment Management, which held 11 million shares of Colgate-Palmolive Company (NYSE:CL) with a combined value of $783.12 million.
9. The Coca-Cola Company (NYSE:KO)
Number of Hedge Fund Holders: 57
Founded in 1892, The Coca-Cola Company (NYSE:KO) is a renowned multinational American corporation celebrated for producing the iconic beverage, Coca-Cola. Beyond its flagship product, the company actively engages in the manufacturing, distribution, and promotion of a diverse range of non-alcoholic beverage concentrates, syrups, and notably, alcoholic beverages within the beverage industry.
In the first half of FY23, the company showcased robust financial performance, generating $4.6 billion in operating cash flow, with free cash flow reaching $4 billion for the same period. This highlights The Coca-Cola Company (NYSE:KO)’s strong cash generation ability, positioning it favorably to meet its shareholder commitments in the upcoming periods.
As of the conclusion of the third quarter, among the 910 funds tracked by Insider Monkey, 57 hedge funds held positions in the company. Notably, the most significant investor was Warren Buffett, who maintained a substantial stake valued at $22.39 billion in The Coca-Cola Company (NYSE:KO).
8. CVS Health Corporation (NYSE:CVS)
Number of Hedge Fund Holders: 64
Based in the United States, CVS Health Corporation (NYSE:CVS) is a prominent healthcare entity overseeing an extensive network of retail pharmacies and clinics nationwide. The organization manages various brands, including CVS Pharmacy (a retail pharmacy chain), CVS Caremark (a pharmacy benefits manager), and Aetna (a health insurance provider).
In the third quarter, CVS Corporation (NYSE:CVS) achieved sales of $89.76 billion, signaling an almost 11% increase from the corresponding period in the previous year. The company also reported a net income of $2.27 billion, or $1.75 per share, for the quarter. This marked a significant turnaround from the net loss of $3.40 billion, or $2.59 per share, reported for the same period a year ago.
As of the conclusion of the third quarter in 2023, data from Insider Monkey’s database, monitoring 910 hedge funds, indicated that 64 hedge funds had positions in CVS Health Corporation (NYSE:CVS). Notably, Two Sigma Advisors, led by John Overdeck and David Siegel, emerged as a significant investor with a substantial stake in the company valued at $344.87 million.
Coho Partners Relative Value Equity Fund made the following comment about CVS Health Corporation (NYSE:CVS) in its second quarter 2023 investor letter:
“In December of 2017, CVS Health Corporation (NYSE:CVS) agreed to buy Aetna, which broadened its offering by entering the managed care business. CVS has been moving its portfolio to a more value-based outcome model, and Aetna was a major move in that direction. We were willing to accept the leverage that came with the deal because CVS has a very cash generative model, and we anticipated the free cash flow would enable the company to de-lever fairly quickly.
By mid-2022, CVS was in a position to use the free cash flow that had been going to debt repayment to do bolt-on deals to further prepare for the value-based outcome model and/or return more cash to shareholders in the form of higher dividends or share repurchases. However, CVS lost a “star” in its largest Medicare plan in late 2022 and this will adversely impact earnings in 2024. This was a surprise and disappointment to us, but management should be able to regain the “star” in the back half of 2023, which will then give the company a nice tailwind in 2025…” (Click here to read the full text)
7. PepsiCo, Inc. (NASDAQ:PEP)
Number of Hedge Fund Holders: 65
Based in Purchase, Harrison, New York, PepsiCo, Inc. (NASDAQ:PEP) is a leading American multinational corporation operating in the food, snack, and beverage sector. Recognized for its financial resilience, the beverage giant has sustained a continuous pattern of dividend growth over 51 years. Currently, it offers a quarterly dividend of $1.265 per share, resulting in a dividend yield of 3.03% as of December 20.
Based on data from Insider Monkey, PepsiCo, Inc. (NASDAQ:PEP) was present in 65 hedge fund portfolios by the end of Q3 2023. One of the prominent investors was Fundsmith LLP, with a holding of 6.63 million shares in the New York-based beverage manufacturer, valued at $1.12 billion. Over the last five years, the company’s shares have experienced a notable increase of around 45.2%.
PepsiCo, Inc. (NASDAQ:PEP) has consistently ranked among the likes of Costco Wholesale Corporation (NASDAQ:COST), Walmart Inc. (NYSE:WMT), and Berkshire Hathaway Inc. (NYSE:BRK-B) as one of the best stagflation stocks to buy.
6. Costco Wholesale Corporation (NASDAQ:COST)
Number of Hedge Fund Holders: 65
Costco Wholesale Corporation (NASDAQ:COST) manages a worldwide network of membership warehouses, predominantly operating under the “Costco Wholesale” banner. It delivers high-quality, brand-name products at substantially lower prices than traditional wholesale or retail outlets. As of December 21, the company offers a quarterly per-share dividend of $15.0, translating to a dividend yield of 0.61%. Costco Wholesale Corporation (NASDAQ:COST) has maintained a consistent track record of dividend growth for the past 19 years, highlighting its commitment to shareholder rewards.
According to Insider Monkey’s data, 65 hedge funds were long on Costco Wholesale Corporation (NASDAQ:COST) at the end of Q3 2023, compared to 67 funds in the previous quarter. Bridgewater Associates, led by Ray Dalio, is one of the most prominent stakeholders in the company, holding 828,184 shares valued at more than $467.8 million.
RiverPark Advisors mentioned Costco Wholesale Corporation (NASDAQ:COST) in its Q2 2023 investor letter. Here is what the firm has to say:
“Costco Wholesale Corporation (NASDAQ:COST), founded in 1983, is the world’s third-largest retailer with 850 stores, $240 billion in revenue and 68 million members spread across North America, Europe, Asia, and the Southern Pacific Region. The company is known for its strong value proposition driven by high-quality low-cost offerings including a well-regarded private-label brand. Costco regularly ranks at the top of customer surveys related to brand trust, product price and quality, and all-around experience. Historically, 90% of the company’s shoppers renew their memberships, which generate more than 50% of operating income.
Through expanding market share, new store openings, increasing member productivity, and omnichannel expansion, we believe the company can grow revenues annually in the high single digit percentage range. This revenue growth should yield steadily growing margins and EPS growth in the low-to-mid-teens, which should drive shareholder returns in the same range.”
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Disclosure. None. Stagflation Definition: 11 Best Stagflation Stocks To Buy is originally published on Insider Monkey.
