3 Inflation-Proof Stocks to Be Bullish About

May
6, 2021

4 min read

This story originally appeared on MarketBeat

With Federal Reserve officials continuing to downplay the risk of higher inflation, a lot of investors are dismissing the idea that easy monetary policy is already having big impacts on the stock market. On the other hand, there are already plenty of signs that inflation might be rearing its ugly head. Grocery prices are at seven-year highs, home prices are soaring, and CPI numbers are consistently exceeding economists’ expectations. All of this means that it might not be a terrible idea to start looking at stocks that can potentially outperform in an inflationary environment.

The truth is that we are already seeing a lot of money flow into these types of “inflation-proof” stocks. Meanwhile, high growth companies and tech stocks are getting hit hard, which tells you all you need to know about what fund managers think about inflation risks. If you are interested in adding exposure to companies that should hold up well if inflation rises, this article is for you. Let’s take a look at 3 inflation-proof stocks to be bullish about.

Nucor Corp (NYSE:NUE)

Steel stocks are a good place to look at this time amidst inflation concerns, particularly since they tend to perform well when commodity prices are rising. Even a small uptick in revenue for these companies leads to a big increase in their earnings thanks to their operating leverage. That’s why Nucor Corp is a great option to consider, as it’s a major manufacturer of steel and steel products and North America’s largest steel recycler. The company relies on electric arc mini-mills, which are more efficient and cost-effective than blast furnaces, and is the most diversified steel producer in the country.

At the moment, Nucor is benefitting from strong demand across many of its end markets and should continue to profit from a widespread economic recovery throughout the year. Nucor also has a very strong balance sheet and has grown its dividend for 48 consecutive years, which means you can take advantage of additional income as a shareholder. Finally, the company reported record Q1 net earnings of $942.4 million and saw its consolidated net sales increase by 33% to $7.02 billion, confirming that this is a steelmaker firing on all cylinders.

Chevron Corporation (NYSE:CVX)

One trend that stands out at the moment is the strength in energy stocks like Chevron Corporation. This could be a sign that “smart money” is looking for inflation-proof stocks, which is why investors should be paying close attention to the current strength in the sector. Energy prices are known to be directly correlated with U.S. consumer price inflation rates, which means that Chevron could benefit from higher oil & gas prices soon. It’s a globally integrated oil company with interests in exploration & production, refining & marketing, and petrochemicals.

This is a high-quality energy name that currently offers investors a 5.05% dividend yield, which is another plus to consider in an inflationary market environment. Chevron reported a profit in its most recent quarter announced that it is raising its dividend by 4%, which is great to see after a tumultuous 2020 for the company. It’s also a company that legendary investor Warren Buffett picked up a position in last year, which is a strong vote of confidence. The stock is up over 28% year-to-date and is a fine choice for investors that want to protect their portfolios from inflation.

Freeport-McMoRan Inc (NYSE:FCX)

Metals & mining stocks can be a solid hedge against inflation since their earnings are tied directly to commodity prices like copper and gold. That’s a big reason why Freeport-McMoRan is a nice inflation-proof stock pick, particularly given the huge rally in copper prices that is taking place. As one of the world’s largest copper producers and a major producer of gold, Freeport adds roughly $300 million in free cash flow for every $0.10 lb increase in the price of copper.

The company saw its Q1 revenues increase by 73% year-over-year to reach $4.8 billion and is ramping up its production to keep up with heavy global demand. Keep in mind that President Joe Biden’s infrastructure bill will be very beneficial for companies that produce copper after it is passed. While Freeport-McMoRan has already rallied considerably in 2021, adding shares on dips might be a good idea given that inflation risk is still on the table at this time.

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