How to Find "Inflation-Proof" Stocks to Add to Your Portfolio

Experts weigh in on safe stocks for portfolios today

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With the next Fed meeting on the not-so-distant horizon, May 3 and 4, as well as the 2-year vs. 10-year bond ratio inverting last week, leading indicators seem to point toward further inflation or a potential recession. We did a complete series on last month's Fed meeting, but let's put that information into actionable insights. Today, we sat down with a couple pros in our industry to discuss potential inflation-proof stocks.

First, we chatted with Dr. Jim Schultz of tastytrade. According to Dr. Schultz, "In a market dealing with high inflation, the safe play has always been to shift into the consumer staples, like Procter & Gamble (NYSE:PG)Kroger (NYSE:KR), or Target (NYSE:TGT). When consumers are pinched, the theory is they will forgo eating out, entertainment, or a new pair of shoes before they stop buying soap, buying groceries, or going to Target to buy soap and groceries. Thus, the revenue streams of these types of companies are often shielded from the inflationary pressures that can dampen the prospects of other growth-oriented companies. So, a portfolio rotation into the consumer staples space could prove beneficial during periods of higher inflation.

Interestingly, however, the best move in theory doesn’t always match the optimal move in practice. Case in point, the rise of the Nasdaq index over the last couple of weeks, despite inflationary concerns worsening and the index’s heavy reliance on growth stocks in the tech space. Therefore, an even safer play than the safe play itself might be simple, straightforward exposure to the broad market US Indexes, like SPY or QQQ. Historically, stocks as an asset class have been an extremely effective hedge against inflation, so rather than try to pick the winners in the stock market here, it might be prudent to simply pick the entire market and play that angle.”

From another perspective, we heard from Andrei Stetsenko of Farley Capital LP. Mr. Stetsenko clarified his definition of an "inflation-proof" portfolio being one that meetings the following criteria: (1) do not rely on high levels of debt (which would become even riskier if sustained high inflation forced central banks to hike interest rates more aggressively than currently expected); (2) are not selling at unreasonably high multiples of earnings (limiting vulnerabilities associated with higher rates causing those multiples to compress); and (3) are leaders in growing markets/sectors, within which they effectively act as “toll booths” on the revenue streams of other companies (thereby affording built-in inflation protection).

According to Mr. Stetsenko, "Among the best examples of individual stocks that meet all three criteria include the world’s leading electronic payment networks aka Mastercard (NYSE:MA) and Visa (NYSE:V) and the world’s dominant digital advertising platform aka Alphabet (NASDAQ:GOOG).

Finally, from a completely different perspective, we talked to Lana Khabarova of SustainFi. According to, "There is no perfect way of 'inflation-proofing' your investments, but some assets do much better during periods of high inflation. Historically, natural resources and energy have outperformed during inflationary periods. Today, agriculture and farmland investments may position you better given that some of the inflation is caused by rising food prices. By owning ETFs that invest in agriculture (such as grains) or farmland REITs you at least benefit from rising commodity prices. Examples include the Teucrium Wheat Fund and the Teucrium Corn Fund. However, commodities can be volatile, so it's not a good idea to allocate a big amount to them."

 




 
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