In June, annual inflation (from the most recent data) slipped to 3%, which on paper clashes with the concept of stocks to beat inflation. After all, NPR pointed out that the aforementioned statistic represented the lowest point since March 2021. That’s a sign that the Federal Reserve’s hawkish interest rate hiking campaign is making an impact.
However, the main challenge with this thesis is the “core inflation” indicator, which strips out volatile food and energy prices. Unfortunately, this metric clocked in at 4.8% in June, well above the Fed’s target of 2%. At the time, analysts speculated that the central bank would raise rates again to combat price acceleration. It did just that, which seems to clash again with inflation-proof stocks.
Nevertheless, the labor market remains robust, which is why investors should still buy stocks for inflation protection. True, the latest tally in July slipped against expectations. However, the unemployment rate also sank back to 3.5%, indicating labor sector resilience.
Put another way, more dollars continue to chase after fewer goods. So, you should beat inflation with stocks that might cynically rise in this heightened environment.
Frankly, the narrative for metals and mining giant Newmont (NYSE:NEM) as one of the stocks to beat inflation speaks for itself. Should inflation worsen, the commodities sector will almost surely benefit. Not only that, Newmont’s gold business should blossom. Historically, gold carries a reputation for being a safe-haven asset against inflationary pressures.
Further, I appreciate that you can accrue some decent passive income with NEM. Right now, the company carries a forward yield of 3.91%. That’s noticeably above the materials sector’s average yield of 2.82%. Also, while the payout ratio isn’t the lowest, at 58.95%, investors shouldn’t fret too much about yield sustainability.
Financially, Newmont could use some improvements as the company tackled the headwinds associated with the Covid-19 crisis and later the Fed’s hawkish monetary policy. Still, if the central bank can’t tackle elevated prices, NEM makes a compelling case for inflation-proof stocks.
Southern Company (SO)
A gas and electric utility holding firm, Southern Company (NYSE:SO) offers in my opinion a no-brainer for stocks to beat inflation. Basically, the case for SO comes down to its underlying natural monopoly. According to Southern’s public profile, it serves 9 million customers. You’re not just going to come in and compete with this enterprise.
Another fundamental catalyst for SO – and one you should pay attention to if you want to buy stocks for inflation protection – is the necessity of the business. Unlike a discretionary purchase like an overpriced latte at a fancy coffee shop, you must pay your bills. Otherwise, you suffer a ripple effect that could easily ruin your life.
Lastly, investors seeking to beat inflation with stocks should earmark SO. Not only does it provide an indelible business, but it also offers robust passive income. Currently, Southern carries a forward yield of 4.13%, above the utility sector’s average yield of 3.75%.
American Water Works (AWK)
Another candidate for no-brainer ideas for stocks to beat inflation, American Water Works (NYSE:AWK) is a public utility that provides water and wastewater services in the U.S. Per its corporate profile, the company serves approximately 1,700 communities in 14 states. Overall, the underlying user base comes out to about 14 million through 3.4 million customer connections.
Again, if you want to buy stocks for inflation protection, you’ve got to think cynically. You’re looking for businesses that no matter what people must engage. Obviously, holistic water-related services represent one of the most important. If you don’t believe me, don’t pay your water bills. Let’s see how quickly that steamrolls into one giant pile.
Primarily, American Water is indelible so it doesn’t need that much coaxing as it relates to inflation-proof stocks. But as a bonus, the company also carries a forward yield of 1.99%. While it’s lower than the utility sector’s average yield, American also commands 14 years of consecutive annual dividend increases.
Valero Energy (VLO)
A downstream energy specialist, Valero Energy (NYSE:VLO) focuses mostly on manufacturing and marketing transportation fuels. While the political and ideological narrative has shifted toward the electrification of mobility, the harsh reality is that electric vehicles are still too expensive for average households. Plus, inflation would likely force consumers to make do with what they have, not go out and buy replacement vehicles.
With people stuck with their combustion-powered vehicles, Valero should benefit cynically. Therefore, I anticipate VLO to rise as one of the stocks to beat inflation. Yes, shares have only gained about 6% since the Jan. opener. However, over the trailing one-year period, they’re up nearly 21%. Another benefit to targeting Valero as one of the inflation-proof stocks centers on its passive income. Right now, the company carries a forward yield of 3.22%. It’s a bit lower than the energy sector’s average yield of 4.24%. However, you must also factor in the low payout ratio of 30.9%.
Alphabet (GOOG, GOOGL)
Off the top, Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) might seem like a strange idea if you want to buy stocks for inflation protection. However, the owner of the massive Google ecosystem should thrive under a framework of rising or elevated prices. During difficulties, people look for different avenues to cope. And what better way to find information than through Google? After all, it dominates the global search engine market.
Another fundamental factor that should lift GOOG as one of the stocks to beat inflation is its YouTube video content platform. With so much (free) information available there, you can practically pick up a doctorate degree or two in whatever subject you’re studying. Here, people searching for lifehacks to save money to tips on landing a dream job should translate to greater engagement. And that engagement leads to more advertising dollars.
Plus, the company continues to benefit from solid revenue and EBITDA growth. As well, it’s consistently profitable with a trailing-year net margin of 21%. If you want to beat inflation with stocks, take a look at GOOG.
Wading into the riskier ideas for stocks to beat inflation, grocery giant Albertsons (NYSE:ACI) cuts a somewhat disappointing figure. Since the start of the year, ACI gained just a hair over 5%. During the trailing one-year period, shares slipped almost 20%. Nevertheless, the main fundamental catalyst of the trade-down effect should help invigorate sentiment.
As a McKinsey & Company report indicated earlier this year, consumers hurt by inflation are trading down. Basically, they’re forgoing expensive brands or stores for their lower-cost alternative. Eventually, I forecast you’ll see wholesale trade downs. In particular, people won’t be so eager to eat out at fancy restaurants. Instead, they’ll cook for themselves and their families.
Also, while Albertsons presents significant risks, it also entices investors who want to buy stocks for inflation protection. Notably, the market prices ACI at a forward multiple of 7.76. As a discount to projected earnings, Albertsons ranks better than 96.83% of the defensive retail competition.
To be upfront, online aftermarket auto parts provider CarParts.com (NASDAQ:PRTS) ranks among the riskiest ideas for stocks to beat inflation. It’s incredibly relevant because of the conditions impacting the consumer economy. However, since the Jan. opener, PRTS lost more than 28% of its equity value. During the trailing one-year period, PRTS gave up over 46%.
At the same time, the fundamentals are aligning beautifully (albeit cynically) for CarParts.com. As data from S&P Global Mobility showed, this year, the average age of passenger vehicles on U.S. roadways hit 12.5 years, a record. This dynamic confirms that people are hurting with higher prices. It’s not just “paper” pain. What’s more, the framework has a consequential effect on the auto parts industry. In other words, consumers are going to drive their incumbent vehicles until the wheels fall off. This factor alone should be a huge catalyst for PRTS. That’s why I’m including it on this list of inflation-proof stocks.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.