Inflation is back and the Fed seems to be determined to raise interest rates another two or three times this year. Even if the pace of future hikes is more cautious, as now seem likely, an acceleration of monetary tightening on top of last year’s strong dollar, tariff costs and oil prices will inevitably lead to higher inflation. Risk-free yields are so low that they can barely keep up with it. And when we say risk-free yield, we mean it in its literal sense: There isn’t much risk-free yield left among high-grade corporate bonds or government paper. That’s because investors have been hungry for anything that offers even a small return after years of record-low interest rates and quantitative easing programs from central banks all around the world. In this article, we take a look at which stocks might respond best to rising inflation and why.
Short-Term Bonds
While we are not generally fans of bonds, we do believe that short-term bonds in dollars and other currencies with high inflation can be a way of balancing a stock portfolio in the face of rising inflation. We favor short-term dollar bonds, given the dollar’s appreciation and the potential for short-term interest rates to rise from their current record-low levels. It’s important to note, however, that short-term bond yields are at ridiculously low levels; it’s just that they are even lower than they were previously. One of the best sources for current yields on all kinds of bonds is the Bloomberg Bond Yields menu.
Basic Commodities
When the Fed has raised rates in the past, the commodity sector has performed well. We believe this will happen again because commodities are a classic hedge against inflation. Prices of basic commodities such as crude oil, natural gas, corn, wheat and soybeans have been rising since late last year. A general rise in inflation typically leads to higher demand for these commodities. This is especially true as the global economy is expected to strengthen. We recommend investors consider a selection of exchange-traded funds (ETFs) that hold futures contracts on crude oil, natural gas and other commodities.
FintechZoom selected Stocks related to Gold:
TOP 3 Stock
IAUX i-80 Gold Corp.
SBSW Sibanye Stillwater Limited
NGD New Gold Inc.
The stock market is a continual see-saw of emotions. Fear and greed are the two main drivers that impact market performance. Investors wary of the implications of tariffs or trade conflicts will sell off their stocks in sectors that may be affected. Alternatively, investors who recognize an opportunity to buy stocks at a discount will snap them up. As a result, the best stocks to invest in during any given time period will vary. Some industries perform better than others during certain parts of the business cycle. Additionally, some commodities have more favorable demand and supply dynamics than others, leading to better-performing stocks. Here are some of the best commodities stocks to buy if you’re looking for investments with strong upside potential over the next year or so…
Oil Companies
There are a couple of ways to invest in oil. You can purchase stocks in major oil companies such as Exxon Mobil, Royal Dutch Shell, Chevron, or BP. Alternatively, you can purchase shares of oil ETFs or commodities funds that are dedicated to oil. Oil is one of the few commodities expected to see robust demand in the near future. Developing economies are expected to drive up demand for oil-based fuels. There are, however, some risks associated with oil stocks. If oil prices fall, so will oil stocks. It’s important to remember that oil prices are more volatile than oil stocks. Fortunately, oil prices are expected to rise over the next few years. All else being equal, an increase in oil prices will likely be good for oil stocks.
Chemicals and fertilizers
The chemicals industry is a cyclical business. When the economy is growing, demand for chemicals and fertilizers increases. Low crop yields in a given year can sometimes lead to increased demand for fertilizers. Fertilizer stocks are expected to perform well in 2019 thanks to strong demand for food around the world. Rising commodity prices are good for chemicals stocks, as well. The main risk to chemicals stocks is a slowdown in the global economy. If economic growth slows, demand for chemicals can fall, causing prices to fall as well. A recession in China, a major importer of chemicals, could have a significant impact on the industry.
Mining Stocks
The mining sector is another cyclical industry. Mining stocks tend to perform well during periods of rising commodity prices and a strengthening global economy. Once the economy hits a cyclical peak, mining stocks may fall. The demand for certain minerals is expected to increase over the next decade. Iron ore is a particular area of strength because of its use in steel production. A rise in infrastructure spending in Asia is expected to drive demand for steel over the next decade. Keep in mind, however, that the mining sector is a risky one. If commodity prices fall, the demand for minerals can drop along with stock prices.
Computer and Technology Commodities
If you want to invest in the tech industry, you can go in a couple of different directions. You can buy stocks in computer hardware companies such as Intel or Samsung. Alternatively, you can buy stocks in computer software and service companies such as Microsoft or Alphabet. A computer and technology commodities fund that invests in stocks across the technology sector is another option to consider. This type of fund may have some advantages compared to other types of stocks. Computer hardware stocks, for example, can be very volatile. Computer software stocks, on the other hand, can be more stable. A computer commodities fund can be more diversified, which can help smooth out the ride.
Concluding Words
There are various commodities stocks to buy if you want a diversified portfolio. Commodities can provide a hedge against a decline in stocks and bonds. These commodity stocks should perform well in the near future due to strong demand and low risk. As a general rule, investors should buy commodities stocks when they are cheap. Commodities stocks are generally quite volatile, so keep this in mind when making investment decisions.
Energy Stocks
Energy stocks tend to be excellent plays on rising inflation. They are typically the first to see higher prices from rising raw materials and transportation expenses. They are also often the first to see accelerated demand from a strong economy. A strong U.S. economy is expected to lead to increased demand for crude oil, especially as the country transitions from imported to domestic sources of natural gas. We favor stocks that have the lowest cost of production, such as those in the shale fields.
TOP 3
E Eni S.p.A.
BTU Peabody Energy Corporation
NOG Northern Oil and Gas, Inc.
Ultra-Large Oil Company
There are many reasons why Exxon Mobil Corporation (XOM) is one of the best energy stocks to buy now. First, it’s the largest publicly traded oil and gas company in the world. That gives it access to large oil fields and natural gas resources around the globe. It also has a long history of profitability, which means that its earnings are likely to remain steady regardless of any short-term fluctuations in oil prices. Finally, it has a solid balance sheet, which means that it can take on more debt if needed to fund growth projects. However, one potential pitfall of investing in Exxon Mobil is that it’s not diversified. More than 90% of its earnings come from the exploration and production of oil and natural gas. While that means it’s pretty shielded from the potential downturns in other sectors like solar and wind power, it also means that it would take a greater hit if the world transitions to cleaner energy sources.
Diversified Producer and Distributor
The next best energy stock to buy now is Berkshire Hathaway Inc. (BRK.A) The company is a diversified producer and distributor of energy. It owns several large companies that have their own energy production and distribution operations. Its subsidiaries include the Berkshire Hathaway Energy Company, the MidAmerican Energy Company, and the Pacific Gas and Electric Company. Berkshire Hathaway is also a large distributor of energy products. Its holdings include companies like Duracell, Fruit of the Loom, Johns Manville, and Accel Switches. Berkshire Hathaway is a great company to invest in because its subsidiaries have very different energy sources, which means that they’re less vulnerable if one source has a major issue. It also has significant cash reserves, which can be used to fund its future growth if needed. However, Berkshire Hathaway is also one of the largest public companies in the world. It’s not a good fit for most investors, but it might be a good long-term investment for larger institutions.
Future of the Environment
Duke Energy Corporation (DUK) might not spring to mind as the obvious best energy stock to buy. However, it’s a great investment because it’s involved in nearly every aspect of the energy industry. Duke Energy operates in the United States, Latin America, and Asia. It produces and distributes coal, hydroelectric, natural gas, oil, and other energy types. It also has several renewable energy projects, including wind, solar, and hydroelectric facilities. Duke Energy’s investment in renewable energy is growing, which could make it an interesting play for investors who are keen on the future of clean energy. However, it’s important to note that Duke Energy has been involved in a number of environmental issues in the past. Its coal plants have been criticized for their high emissions. It also settled a legal dispute in 2018 with the state of North Carolina over groundwater contamination.
Company to Buy: Royal Dutch Shell Plc.
Finally, the best energy stock to buy now is Royal Dutch Shell Plc. (RDS-A) It is the largest global producer of liquefied natural gas and is a major contributor to the global oil and natural gas industry. It is also a significant producer of biofuels and petrochemical feedstocks. Like Berkshire Hathaway, Shell has a wide range of energy sources. It also has a strong balance sheet, which means that it can take on more debt if needed to finance growth projects. However, Shell is also one of the largest publicly traded companies in the world. It’s a great company to invest in, but it’s best for larger investors due to its high stock price.
Electric Car Manufacturer
Tesla Inc. (TSLA) might not be the first energy stock that comes to mind. However, it’s a major player in the energy industry. Tesla manufactures electric vehicles and solar panels, but it also produces batteries for homes and businesses. Tesla is not only a good investment now, but also a good investment for the future as the world transitions towards renewable energy. It also has a strong balance sheet, which means that it can expand into new products without having to worry about going bankrupt. However, Tesla is also the most heavily shorted stock in the entire stock market. It’s a risky bet, but the potential payoff is significant.
Fast-Growing Tech Stocks
Tech stocks have been the best-performing sector of the market over the past decade. We expect that trend to continue as more and more economic growth gets digitized. But tech stocks are often lumped into a broad “growth” category that includes everything from biotech to cloud computing to electric vehicles. And while we are huge fans of tech stocks, they are also among the most expensive sectors in the market. We believe that tech stocks that sit on the low end of the price spectrum will be the best performers as inflation rises out of its low-interest-rate slumber. In particular, we like tech stocks that are expected to see accelerating revenue from new products or from price increases that are driven by rising costs.
Microsoft
People often forget about Microsoft, but it’s still one of the best technology stocks to buy. It’s also one of the most reliable and well-diversified tech stocks. It’s been around for decades, which means it is well-seasoned and experienced in the changing technology landscape. Microsoft’s consistent revenue and earnings growth is driven by the company’s cloud business. Its cloud business grew 93% in the last quarter. Microsoft’s cloud business is currently its fastest growing segment with almost $25 billion in revenue in the last quarter. Microsoft’s Office 365, Dynamics 365, and Azure are among the best cloud services out there. The company is still relevant in the new world of computing. It’s looking to expand its reach in the booming blockchain industry, too. Microsoft has a virtual assistant named Cortana that competes head-to-head with Amazon’s Alexa. Cortana is also one of the best virtual assistants out there and is available across multiple platforms.
Amazon
Amazon is one of the best-performing stocks of the last decade. It’s also one of the best stocks to buy right now. This is because the company is always looking to expand into new markets and offers almost anything you could want from a single platform. Amazon has been one of the companies leading the way with the growth of cloud services. The company’s cloud business has grown substantially in recent years. It was Amazon Web Services that introduced the world to cloud services. This is a huge part of Amazon’s business now and shows no signs of slowing down. Amazon’s cloud service is one of the best in the industry, too. It offers top-notch security and scalability compared to the competition. The company’s recent acquisition of Whole Foods will only expand its reach and diversify its offerings.
Facebook is one of the best fast-growing tech stocks to buy right now. While it has had its ups and downs as a company, it continues to grow and expand in new sectors. The company has diversified its services and offerings to include almost everything you can imagine. Facebook is an excellent source of advertising and has shown consistent growth in this area. The company has made some bold moves in recent years to expand its reach in other areas. The company purchased Instagram, which is a popular photo-sharing app. It also purchased WhatsApp, which is a popular messaging app. The company has also expanded its services to include a virtual reality headset named Oculus. Facebook’s reach is almost unparalleled and its ad revenue continues to grow by the quarter. This is a good sign for the company and makes it a good stock to buy.
Alphabet (Google)
Google is one of the most recognizable brands around. It’s one of the best technology stocks to buy because it offers almost anything you could want. From online advertising to virtual reality headsets, Google does it all. The company’s cloud business is one of the best in the industry. It competes with Amazon Web Services and Microsoft Azure. Google has also expanded its reach in the virtual assistant industry. The company’s Google Assistant is one of the best virtual assistants out there. Recently, Google has also been making moves towards the blockchain industry. The company has been investing in blockchain-related startups. Google has also created its own blockchain platform. This platform is designed to be more scalable than other blockchain platforms.
Fast-Growing Tech Stocks to Buy: NVIDIA
NVIDIA is a leading manufacturer of graphics processing units, or GPUs. These high-performance chips are used in many industries, but mainly gaming and cryptocurrency mining. NVIDIA is one of the best stocks to buy right now because it is a leading technology company. NVIDIA is a pioneer in the field of artificial intelligence and machine learning technology. This makes it a great long-term investment because AI and ML technology will only increase as time goes on. Finally, NVIDIA is a proven technology company that has been around for many years. This means it has weathered the many ups and downs of the tech industry for years and is here to stay.
Intel
Intel is a leading manufacturer of computer processors and chips. These chips are used in almost all computers, laptops, and mobile devices. Intel is one of the best stocks to buy today because it has excellent growth potential. Intel is currently struggling to compete in the growing market of cloud computing. The company has been playing catch-up in this area for years. However, Intel has recently made a move to compete with the best technology stocks. The company has partnered with Amazon Web Services to provide Intel-powered cloud services. This should help Intel catch up to the competition and become a leading tech company again.
Summing up
Tech stocks are risky, but they can also be very lucrative. The best tech stocks to buy are ones that are diversified and have a proven record of growth. Microsoft, Amazon, Facebook, and Alphabet are excellent examples of this. NVIDIA and Intel are leading tech companies in their respective fields. They have excellent growth potential, but they are also more established companies. This makes them a more reliable investment.
Longer-Term Plays
Some of our best long-term ideas for playing a rising inflation environment are the same stocks that have been best in the current low-interest-rate environment. We like large-cap stocks with high dividend yields and steady growth, such as healthcare and consumer staples companies. We also like tech stocks or other sectors that have shown high profit growth and have the potential to increase their share prices as the economy strengthens.
Conclusion
We remain optimistic about the stock market in the face of rising inflation. We expect the broad stock market to benefit from rising inflation, as it has in the past. We recommend investors consider the stocks and sectors that are most likely to benefit from rising inflation and take advantage of the low interest rates that have prevailed over the last decade. With the general expectation being that inflation will accelerate, it might be a good idea to consider stocks with pricing power that can raise their prices without losing too many customers.
