Inflation and transitory are probably two words that investors are getting tired of hearing, yet it’s important to understand that this is what is moving markets following the pandemic. Every Consumer Price Index (CPI) report has the chance to cause sharp rallies or selloffs, which means investors should be on their toes at all times in the current market environment. Traders and fund managers are desperate for some clarity on how the economic recovery is going and whether or not inflation is here to stay, but unfortunately, only time will provide the answers to these questions.
One thing’s for sure – putting together an inflation playbook makes a lot of sense given how these concerns continue to come up in the stock market. With rising commodity prices, the threat of tighter monetary policy, and treasury yields creeping higher, it might not be a bad idea to start adding shares of stocks that are set to rally in an inflationary environment. Checking out companies with exposure to financials, metals, and even cryptocurrencies could end up being a very rewarding move if inflation continues to rear its ugly head.
Here are 3 stocks to consider buying in an inflationary environment:
The financial sector is a great place to look if you think that inflation is here to stay, as the Federal Reserve will likely increase interest rates quickly to combat the impacts of eroding purchasing power. That would be a huge plus for big banks like JPMorgan Chase, a company that would see its profit margins expand as rates go up. It’s one of the largest global financial services companies, with about $3.7 trillion in assets and operations worldwide as of June 30, 2021. This is a quality bank to own for a few reasons, including its diversified revenue streams, massive scale, and a very strong loan book.
It’s also worth mentioning that investors will benefit from a 2.35% dividend yield here, which is another great way to combat the impacts of inflation. The company should see a strong revenue bump as the economy continues to recover, with lending revenues set to jump as stimulus measures are cut back. JPMorgan
will kick off the Q3 earnings season with its release on October 13th before the market opens, and it will be very interesting to see how the company is performing in the current economic environment. Keep in mind that bank stocks tend to sell off following the earnings report only to bounce back a few sessions later, which means there could be a nice dip-buying opportunity coming up.
Companies that offer exposure to metals are another place to look during periods of rising inflation, which is why Alcoa belongs on your shopping list. It’s a company engaged in the mining and production of bauxite, alumina, and aluminum products, which are all seeing strong demand at the time. Aluminum prices are soaring at the moment and rose above $3,000 a ton in London on Monday, the highest price since 2008. This is largely being driven by rising electricity prices, as the metal requires around 14 megawatt hours of power to produce.
There’s plenty for investors to like about how important of a role aluminum will play in the automotive, building and construction, electrical, and industrial end markets as the world’s economy get back on its feet, which is another reason to consider adding shares. China, which is one of the world’s biggest aluminum producers, has been cutting its output and dealing with power shortages, factors that should keep prices high in the near term. According to MarketBeat’s consensus analyst ratings, Alcoa
stock is a buy with an average price target of $52, implying a 9.29% upside at this time.
Silvergate Capital (NYSE:SI)
One of the more controversial takes on how to fight inflation is investing in digital assets like cryptocurrency. While it’s hard to deny the incredible returns delivered by major cryptos in 2021, the jury is still out on whether or not this risk asset will be a good hedge against inflation over the long term. If you think that might be the case, Silvergate Capital
is a stock that offers exposure to cryptocurrencies and has been showing serious relative strength over the last few weeks.
Silvergate Capital Corporation is a holding company for Silvergate Bank, which is a provider of financial infrastructure solutions and services to participants in the digital currency industry. The company’s Silvergate Exchange Network essentially allows institutional investors and crypto exchanges to clear transactions in real-time, and has helped the bank grow its deposits at an astounding pace. In Q2, Silvergate reported that digital currency customer deposits grew by $4.3 billion to $11.1 billion as of June 30, 2021, and the company’s network handled $239.6 billion of U.S. dollar transfers in the quarter, up 44% year-over-year. While it can be a volatile stock, Silvergate Capital could be one of the best ways to gain exposure to cryptos without actually buying the digital currencies.
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