Prices go up, but these 3 stocks are doing well in times of inflation
There are a lot of stories going around the markets right now. The rise in stocks of electric vehicles such as Rivien and volatile crypto markets are two that stand out. However, the most common story that affects all investors is rising inflation.
On November 10, the United States Bureau of Labor Statistics reported that the consumer price index had risen 6.2% in the past 12 months. Supply chain issues, higher raw material costs and seven-year high oil and gas prices are just a few of the reasons inflation is at its highest for 30 years. . Rising prices affect almost all sectors of the economy, as companies are forced to either absorb the additional costs or pass these costs on to their customers through price increases.
Franco-Nevada (NYSE: FNV), Freeport-McMoran (NYSE: FCX), and Chevron (NYSE: CVX) are three companies built to fight inflation. Here’s what makes each of these dividend-paying stocks a great buy right now.
Enjoy golden sleep while inflation takes others off sleep
Scott Levine (Franco-Nevada): You don’t have to be the smartest investor to know that buying gold is a long-standing strategy to guard against economic uncertainty. What is less well known, however, is that the exposure to the yellow metal transcends pawning those gold necklaces pushed deep into the jewelry drawer or visiting the local coin gallery to purchase bullion. . In fact, your investment choices in gold extend beyond the companies that mine it out of the ground.
Instead, the best way to add sparkle to your wallet to guard against inflation is with a royalty and streaming company. Unlike gold mining companies who take considerable risk in developing and operating capital-intensive gold assets, royalty and streaming companies like Franco-Nevada act as a special type of financier who provides initial capital. mining companies to develop their assets. In return, the royalty and streaming companies retain the right to purchase a percentage of the ore mined at a predefined price or capacity to cCollect a percentage of mineral production from mining operations. While Franco-Nevada is exposed to various precious metals, as well as energy assets, it is gold that provides the lion’s share of the company’s revenue: 54% in the third quarter of 2021.
Okay, so you think this is a different type of gold stock, but it still depends on the rise in the price of gold, right? Wrong.
The company’s operating model means that it will certainly benefit from a rise in the price of the yellow substance, but this is not a zero-sum game – the price of gold can go down and the company can still thrive. Take the last trimester for example.
In the third quarter of 2021, Franco-Nevada reported an 8.7% year-over-year increase in the amount of ounces of gold equivalent. Meanwhile, the company reported a 6.4% drop in the average price of gold, compared to the same period in 2020. Despite these two conditions, the company recorded strong year-on-year growth. ‘other in terms of revenue and net profit of 13% and 7.9%, respectively.
Don’t Complain About Rising Raw Copper Prices – Buy Copper Miners
Lee Samaha (Freeport-McMoRan): The logic is simple: if one of the reasons inflation rises is rising commodity prices, then it makes sense to buy stocks that directly benefit from it. Therefore, it makes sense to start looking at the most economically sensitive raw materials, which usually means copper.
Copper is used in construction, power grids, industrial machinery, transportation, and consumer products – you name it. So when the economy picks up, the demand for copper increases. This is how investors have traditionally viewed the metal.
However, the reality is that copper will receive long-term demand due to its use in emerging technologies such as electric vehicles – they require up to four times as much copper as internal combustion engines. In addition, copper is used in renewable energies (installations, transmission and distribution networks) and a host of other technologies are linked to electrification trends.
Meanwhile, Freeport-McMoRan management believes supply conditions will remain tight across the industry as a whole, even if the miner is expanding its sites after a period of investment.
There is no guarantee that copper prices will continue to soar, and there is no shortage of copper reserves around the world (obtaining permits and setting up sites is the problem. ). However, if you’re worried about inflation, buying Freeport-McMoRan will be a useful way to profit from the price hike.
In addition, given the importance of copper in the energy transition, it’s a safe bet that demand will increase in the coming decades. All of this makes Freeport-McMoRan an attractive stock for investors.
This dividend stock can protect you from cracks in the economy
Daniel Foelber (Chevron): As Lee said, an easy way to fight inflation is to find the companies that are causing it in the first place. Besides the higher costs of raw materials used in industrial production, one of the main factors contributing to rising inflation in the United States is the cost of energy.
Energy is the best performing sector so far this year, but you wouldn’t know by taking a look at the S&P 500 because the sector represents less than 3% of the index. Even the most powerful energy giants – ExxonMobil and Chevron – worth less than software companies like Adobe Where Selling power.
While there is a lot of value if you know where to look, it’s worth mentioning that the energy industry is full of risky companies with over-leveraged balance sheets, prone to ups and downs. Right now, many of these names are booming, but it’s best to stick with a few that can maintain positive free cash flow in good times and bad times.
Chevron is not only an attractive choice because of its size and diverse business that spans the integrated oil and gas value chain. It is also distinguished by its very efficient portfolio and arguably the leanest of the oil majors.
In other words, Chevron can get a good return on the oil and gas it produces, transports and refines without spending as much money as its competitors. This is due, in part, to significant spending which started to decline after the crash of 2014 and 2015.
But it is also because the company has made good investments in attractive areas which can generate a return even at lower oil and gas prices. He also didn’t shy away from looking at times of market weakness, including buying low-cost Permian Basin assets from Noble Energy at the height of the 2020 recession.
Not only is Chevron “the company” resisting inflationary pressures, but shareholders also receive a dividend yield of 4.6%. This is almost enough on its own to offset the current inflation rate of 6.2% year over year.
This article represents the opinion of the author, who may disagree with the âofficialâ recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.