Inflation Stocks: A Guide to Investing in a Rising Market

Written By Mike Munno

Updated November 8, 2023

Today we'll explore the best inflation stocks and how to invest in them. As the global economy recovers from the pandemic, inflation is becoming a growing concern for investors. Inflation can erode the purchasing power of cash and fixed-income investments, but some stocks can help mitigate this risk. 

Inflation is generally considered bad for wealth because it reduces the purchasing power of money over time. When the general price level of goods and services increases, each unit of currency buys less than it did before. This can lead to a decrease in the standard of living for those on fixed incomes.

Inflation Stocks

What Are Inflation Stocks?

Inflation stocks are those companies that have historically performed well during times of rising prices. These companies may have a few characteristics that make them attractive to investors during inflationary times.

A key characteristic of an inflation stock is strong pricing power. Companies that have strong pricing power can pass on increased costs to consumers by raising prices. This way they can maintain their profit margins. This is particularly important during times of inflation when input costs, such as raw materials or labor, are increasing. 

Another characteristic of inflation stocks is companies with appreciating assets. Companies that have assets that appreciate in value during inflation, such as real estate or commodities, may also perform well. For example, real estate investment trusts (REITs) that own properties that can be rented out at higher rates during inflationary periods may see their profits increase. 

Thirdly, companies that are able to generate strong free cash flow may be attractive to investors during inflation. Usually, they are better equipped to invest in growth opportunities or return capital to shareholders through dividends or share buybacks.

Inflation stocks often operate in industries that are more insulated from inflation, such as utilities, health care, and consumer staples. They also tend to have pricing power, meaning they can raise prices on their products and services without significantly impacting demand.

How to Invest in Inflation Stocks

One way to invest in inflation stocks is through exchange-traded funds (ETFs) that focus on these companies. For example, the Invesco S&P 500® High Dividend Low Volatility ETF (NYSEARCA: SPHD) invests in companies with high dividends and low volatility, such as utilities and consumer staples. 

Another option is to invest in individual stocks that have a history of performing well in inflationary environments. Below we have listed our top inflation stocks. We have also provided a brief company profile on each and why they make a good addition to your portfolio. These stocks may jump 1,000% during inflationary periods, but they will certainly pad portfolios. 

Top Inflation Stocks

  • Johnson & Johnson (NYSE: JNJ)
  • Procter & Gamble (NYSE: PG)
  • NextEra Energy (NYSE: NEE)

Johnson & Johnson (NYSE: JNJ)

Johnson & Johnson is a healthcare conglomerate that produces a wide range of products. It produces everything from pharmaceuticals and medical devices to consumer health products. Healthcare spending tends to be less affected by inflation, making JNJ a stable investment in a rising market.

JNJ has a diversified business model with three main segments: pharmaceuticals, medical devices, and consumer health. This diversification can help insulate the company from economic fluctuations in any one particular segment. That’s not the only reason JNJ is on our list of inflation stocks, though.

The company has a long history of paying dividends and has increased its dividend payout every year for over 50 years. During inflationary periods, companies that pay dividends may be particularly attractive to investors seeking a steady stream of income. 

Additionally, as a large and established company with strong brands and products, JNJ has pricing power that allows it to maintain its profit margins during inflationary periods. This means JNJ may be able to pass on any increased costs of raw materials, labor, or other inputs to consumers in the form of higher prices.

Procter & Gamble (NYSE: PG)

Procter & Gamble is considered a good inflation stock for a few reasons. PG is a consumer goods company that produces household brands such as Tide, Pampers, and Crest. These are products that consumers will continue to buy regardless of economic conditions. That's just one reason we like PG as an inflation stock. 

PG is known for its strong cost controls and efficiency measures. During periods of inflation, the company can offset higher input costs through cost-cutting initiatives, such as reducing advertising spending or optimizing supply chain operations. Procter & Gamble is also known for a long history of paying consistent dividends. 

Overall, PG's strong brand power, diversification, cost controls, and dividend income make it a good inflation stock for investors to consider.

NextEra Energy (NYSE: NEE)

NEE is the largest producer of wind and solar energy in the U.S. As the world moves toward clean energy, NEE is well-positioned to benefit from this trend. Additionally, utilities tend to be less affected by inflation, making NEE a solid investment.

NextEra Energy has a significant portion of its revenue derived from long-term contracts with utilities, which provide a predictable stream of income. These contracts typically have inflation-adjusted pricing mechanisms that allow NextEra Energy to maintain profitability during periods of inflation. 

One of the primary reasons NextEra Energy is considered a good inflation stock is its regulatory environment. The company operates in a highly regulated industry, which provides a stable revenue stream and allows it to pass on increased costs to customers during periods of inflation. This is particularly relevant as energy prices tend to rise during inflationary periods, and NextEra Energy's regulatory environment provides a level of protection for the company's profitability.

Another key factor that makes NextEra Energy a good inflation stock is the long-term contracts it has in place with utilities. These contracts provide a predictable stream of income for the company and typically have inflation-adjusted pricing mechanisms. This allows NextEra Energy to maintain profitability during periods of inflation, as it can pass on increased costs to its customers through these contracts.

NextEra Energy's cost-efficiency is another factor that makes it a good inflation stock. The company's focus on renewable energy sources like wind and solar has allowed it to reduce its dependence on fossil fuels, which can be subject to price volatility. This in turn has helped the company keep its costs low and maintain profitability during inflationary periods.

Lastly, NEE also has a long history of paying consistent and reliable dividend payments

Wealth Daily’s Final Say on Inflation Stocks

Inflation can be a challenge for investors, but by investing in the right stocks, you can mitigate the risks. Companies such as JNJ, PG, and NEE are excellent examples of inflation stocks that have historically performed well in rising markets. If you prefer to go the ETF route, SPHD is exactly what you’re looking for. 

Whether you choose to invest in individual stocks or through an ETF, thorough research and a long-term investment strategy are key to success.

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