November 28, 2021
  • November 28, 2021

3 inflation-resistant stocks to buy now

By on October 23, 2021 0

HHigh inflation rates make it difficult to develop a good investment strategy at this time. On the one hand, stocks are generally seen as a great way to hedge against inflation. At the same time, runaway inflation could cause the Fed to raise rates, which would likely lead to market volatility or an outright correction. Worse yet, inflation won’t impact all stocks in the same way – some will incur higher costs that they cannot pass on to their clients with higher prices.

The three stocks below not only offer some resistance to inflation, they should also benefit from rising prices across the economy.

1. Intrepid Potash

Intrepid Potash (NYSE: IPI) is a major producer of potassium salts and related raw materials which are essential inputs in agricultural fertilizers. The company also sells by-products which are used in various agricultural and energy extraction activities.

Intrepid is at the end of the supply chain and the majority of its sales are domestic. High inflation in the United States is expected to drive up commodity prices, pushing Intrepid’s revenue up, regardless of what happens in other countries. Potash prices fell at the start of the pandemic, reaching their lowest level since 2007. But there has been a double-digit increase for the product in recent months, and Intrepid has announced a sharp price increase for several products. in an August press release. . Of course, a number of factors influence the supply and demand for agricultural inputs, but inflation seems to be having a stimulating effect right now.

Many Intrepid costs are fixed (or partially fixed), which means that the higher revenues are expected to fall disproportionately into the bottom line. Depreciation, depletion, and depreciation costs are one of the biggest parts of a company’s spending structure, and these are already set in stone. Intrepid has nearly 500 employees, whose pay is unlikely to be adjusted more than once a year. Wage inflation is also unlikely to keep pace with commodity prices. And the company has revolving credit liabilities, so the interest charges should be fairly stable. Inflation should improve the profitability of the company.

Image source: Getty Images

2. Square

Square (NYSE: SQ) is one of the most promising fintech stocks on the market today, and investors have responded enthusiastically by raising the price to very much bullish valuations. This has resulted in some volatility this year as the market struggles to reconcile speculative asset prices with macroeconomic uncertainty. A Fed rate hike or a prolonged recession probably isn’t good news for stocks whose prices have already assumed tons of growth.

Square undoubtedly carries volatility risk, but the stock also offers long-term growth potential as well as an attractive short-term inflation scenario. The company derives a substantial portion of its revenues from transaction services. He charges 10 cents per card transaction processed by his hardware, plus 2.6% of the transaction value. Its CashApp also generates income from peer-to-peer transfers or purchases between users. As prices rise for all kinds of goods and services, the value of every transaction that Square processes is also expected to rise. This is going to give a nice little bump to income and net cash flow which should be good for the share price.

The company is even able to benefit if Bitcoin (CRYPTO: BTC) appreciates against the dollar, which is exactly what many crypto analysts are predicting. Bitcoin has accounted for 64% of Square’s revenue so far this year, which has increased due to higher prices and higher volume on CashApp. Square only keeps 2% of its Bitcoin revenue, resulting in an almost identical cost to purchase the asset for its customers. Bitcoin’s volatility ultimately isn’t expected to have a huge impact on Square’s net cash flow, but any inflation-driven crypto appreciation should ultimately improve the company’s gross profit.

The stock always costs more than 200 times the profits eventually, so make sure you are comfortable speculating before you buy. Investors who are risk-averse could be handsomely rewarded with this innovative disruptor.

3. Royal Gold

The value of gold as an asset class has become a bit of a divisor among investors in recent years, but no list of inflation hedges seems complete without it. Gold is historically the most famous hedge against inflation, with its limited supply, high liquidity and universal acceptance as a store of value.

There aren’t many pure gold stocks currently, but Royal Gold (NASDAQ: RGLD) is a mining company that could prosper with inflation. In theory, a depreciating dollar should stimulate demand for gold, which should retain its real value as fiat currency fluctuates. Companies that own gold mines and sell the metal would be among the biggest beneficiaries.

For its fiscal year ended June 2021, 74% of Royal Gold’s revenue was attributable to gold and 10% to silver. It also produces industrial metals, especially copper, and these raw materials can be seen as hedges against inflation. The company paid off all of its balance sheet debt last year and increased its annual dividend to $ 1.20 per share. This 1.2% return isn’t mind-blowing, but it is sustainable at around half of Royal Gold’s free cash flow.

Mining companies face all kinds of worker health, geopolitical and operational risks when managing business functions across multiple continents. Nonetheless, Royal Gold is a good option for gaining high exposure to gold prices along with its impressive financial health and efficiency ratios.

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Ryan Downie owns shares of Square. The Motley Fool owns shares and recommends Bitcoin and Square. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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