A few stocks have a proven track of of doing well during periods of increasing inflation, and they are on track to outperform the market this year.
The monitoring of crucial inflation statistics is something that is important to investors since it may increase expenses for businesses and diminish the actual worth of investment returns. While this often isn’t good for the stock market, some corporations have the ability to boost prices and, as a result, inflation is beneficial for the market.
Recent inflationary data gives us a chance to see which firms have managed to withstand price increases in the past. The Bank of America measured substantial inflation periods between November 2003 and September 2006 and between October 2010 and January 2012. Even though inflation was high, the S&P 500 returned about 9% annually over each of the time periods, as shown by BofA.
Valero Energy has the highest percentage of buy ratings. According to a Credit Suisse note released Tuesday, shares of the refiner could see further gains as demand for jet fuel, gasoline, and diesel recovers. Valero is the company’s top pick in the refining sector, according to the firm.
Cigna has also outperformed the market in terms of inflation this year. In 2021, the health insurance company is expected to grow by about 25%. Citi has rated the stock as a top pick. In a note dated Tuesday. Citi attributed the firm’s positive outlook on the stock to significant cash flow generation and attractive valuation.
As the economy reopens, airline stocks have risen, but Alaska Air Group, the holding company for Alaska Airlines, is the only carrier that meets the criteria for inflation winners. According to Goldman Sachs, Alaska Air Group entered the pandemic with one of the strongest balance sheets among its U.S. coverage and is poised to begin repaying debts in the second half of 2021.
“This strong balance sheet, a cost structure that has become more efficient as a result of the pandemic, and new opportunities to grow… drive our view that Alaska will experience a faster-than-industry recovery in profitability,” said Catherine O’Brien, senior equity research analyst at Goldman Sachs, in an April note.
Deckers, which owns Ugg and Hoka, is also on pro’s list. In May, the retailer’s fourth-quarter financial results exceeded Wall Street expectations. In a May 23 note, UBS stated that it is “increasingly bullish” on Deckers, expecting the company to continue beating earnings estimates and thus expanding its price-to-earnings ratio.
“We believe DECK is an undervalued growth stock,” said Jay Sole, an executive director at UBS, in the note. “The key point is that DECK’s growth will astound the market.”
Other names inflation winners include Papa John’s, ConocoPhillips, Exelixis, Timken, and Synaptics.