How To Beat Inflation with Investments

Inflation over 10 years

As seen above, the US inflation rates are their highest in 12 years. For May 2021, rates rose to a staggering 4.2%. While not as high, UK interest rates rose sharply in the last month, travelling from 0.6% to 1.5%.

Inflation in April 2021

Fears Over Inflation

Fears that inflation is on the rise have spooked investors in the Tech Sector due to its reliance on future earnings. However, for savers with an ISA or a SIPP, an inflationary increase could also be terrible news.

SIPPs and ISAs are often known for their slow yet steady growth. However, if the cost of living rises, their meagre returns could soon prove inadequate.

Stocks Worth Investing In

The stock market may be the best place of refuge for cash during inflationary times. So, we’ll look at a few stocks that might be worth investing in in the current climate — and a few that might not.

1. Paypal

Paypal

PayPal holdings could work as a hedge against inflation and a decent investment.

Firstly, it just posted its strongest ever quarter.

Secondly, because it’s a payment processor that takes a piece out of each transaction, inflation could increase the business’s topline.

2. Value Stocks

Everyone loves value stocks during inflation. Housing and rentals generally benefit from higher prices, so the recovering S&P 500 Real Estate Sector Index might still have some bargains.

Other value stocks worth considering are Advanced Micro Devices (AMD), Pioneer Natural Resources Co. (PXD), and Incyte Corp. (INCY). Each one comes with a “buy” rating from Bank of America and some higher target prices.

3. Strong Inflation Sectors

Brain Belski, BMO Capital Markets chief investment strategist, recently took a rigorous look at how relative sectors have fared during similar inflationary periods.

His findings were exciting and confirm many preconceptions about which sectors are best set to weather inflation.

Relative performance for Energy and Industrials

Energy and Industrials come out in front; consumer discretionary and consumer staples and communication lag behind.

4. Pharmaceuticals

UBS recently ran the numbers for stocks with strong pricing power and expanded profit margins. Three of the top five were in pharma, while the other was in cosmetics.

Here are their top 5. 1) Regeneron Pharmaceuticals (REGN) 2) Vertex Pharmaceuticals (VRTX) 3) Comcast (CMCSA) 4) Jazz Pharmaceuticals (JAZZ) 5) Estee Lauder (EL)

Stocks to Be Wary Of

1. Long-Term Bonds or Certificates of Deposits

If inflation rates rise, the Federal Reserve may act by increasing interest rates. If anything, this will cause long-term bonds to seem like a safe place for money, but they will come with low interest rates. These investments are better to make when they are offering higher fixed returns.

2. Growth Stocks

Growth stocks are expected to make their money some years down the line. If inflation goes up, the future profits baked into their prices become more remote: the recent Tech sell-off. Of course, this needs to be considered on a case-by-case basis. Some growth stocks will manage to defy expectations and have great years.

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