Inflation and rising interest rates will be the main storylines in the markets as the calendar heads into 2023. With the Federal Reserve poised to continue its program of steep rate hikes to combat 40-year high inflation , equities will remain in the crosshairs, especially unprofitable companies. who could see their funding sources dry up. So how should investors react for the rest of the year? Here are a few companies to keep in mind.
The best companies to invest in
What are the most attractive companies in inflationary environments with rising interest rates? When inflation is high, companies that can maintain pricing power tend to outperform – such as those in the consumer staples, energy and utilities sectors – are seen as the best bet. Here are five companies that could outperform the broader market when high inflation and soaring interest rates are the focus.
Tyson Foods Inc. (NYSE:TSN)
Tyson Foods is known for its chicken, but it produces all kinds of beef, pork, and poultry products through its various subdivisions. Tyson sells its meat and prepared meals to retailers such as grocery stores and wholesale markets, commercial restaurants, international exporters and catering companies operating cafeterias, hospitals and military commissars. Tyson has roots in many different industries and can pass high commodity costs onto customers with minimal hindsight.
Tyson was founded in 1935 and currently boasts a market capitalization of $25 billion. The dividend yield on the stock is 2.56% and the stock has a low price-to-earnings (P/E) ratio of 6.43. The company has also increased its revenue and gross profit every year for the past four years. Few sectors are better prepared for high inflation than food producers, and Tyson shares have been less volatile than most in recent years. Plus, are Americans really going to say no to increases in the price of chicken wings during football season? It seems unlikely.
Enphase Energy Inc. (NASDAQ: ENPH)
Energy prices have been tumultuous in 2022 thanks to several factors, and even though oil prices have pulled back a little, efficient and cheap energy seems to be an important investment theme going forward. Investing in solar companies has also been risky, but small Enphase Energy in California has shown tremendous resilience compared to its peers.
Enphase Energy specializes in solar solutions for US and international customers. Enphase sells products to individuals and businesses, as well as installers, solar distributors and original equipment manufacturers. The company has increased revenue and earnings every year since 2018 and has exceeded earnings expectations for four consecutive quarters. The stock has a market capitalization of $42 billion, but a beta of 1.49 makes it one of the most volatile entries on this list.
Home Depot Inc. (NYSE:HD)
Home improvement giant Home Depot has more than 2,300 stores in the United States, primarily serving homeowners, contractors and trade professionals. The company sells everything from hardwood to paint to fixtures and plumbing supplies, and employs nearly half a million people in its operations. The company’s shares have a market capitalization of over $280 billion and the shares pay a dividend yield of 2.71%. With a PE ratio of 16.84, the stock is cheap to own and the company has generated higher earnings and more free cash flow than competitors like Lowe’s Companies Inc. (NYSE: LOW).
Home Depot could be one of the biggest beneficiaries of the current market environment as mortgage rates hit decade highs. With rates of 5% to 6%, homeowners who have locked in mortgages at 3% to 4% will be less motivated to sell their home and increase their monthly housing costs. But upgrading or renovating will be an option, especially if house price appreciation has left them with a lot of newfound equity in their homes.
BJ’s Wholesale Club Holdings Inc. (NYSE: BJ)
bj and Costco Wholesale Corp. (NASDAQ: COST) are the two main competitors in the wholesale club industry and although Costco is the bigger name, BJ’s Wholesale Club Holdings might be the best stock to buy. BJ’s is smaller than Costco, with 229 warehouse clubs and 160 gas locations spread across the eastern United States. The company sells perishables and other bulk merchandise, primarily under its personal brands Berkley Jensen and Wellesley Farms.
BJ’s has exceeded earnings estimates for four consecutive quarters and continues to increase annual revenue and profit. BJ shares also have a market capitalization of $10 billion and a P/E ratio of 21.67, which is more than 40% lower than COST’s P/E ratio.
Procter & Gamble Co. (NYSE: PG)
Who doesn’t use Procter & Gamble products? The household and consumer products giant owns many popular brands like Gillette, Olay, Old Spice, Downy, Mr. Clean, Pampers, Charmin, Metamucil and Pepto-Bismol. Chances are, every trip you take to the grocery stores will end with some sort of Procter & Gamble product in your cart. And since many of these household products are basic necessities, the company exercises significant control over its distributors when it comes to pricing.
Procter & Gamble was founded nearly 200 years ago and is one of the oldest companies in the S&P 500. It’s also one of the least volatile, with a beta of 0.35 and a massive market capitalization of $300 billion. The stock pays a dividend of 2.66% and has a modest P/E ratio of 23.36. Investing in defensive consumer stocks like PG won’t necessarily skyrocket your portfolio, but they can be a good bet for preserving purchasing power during times of inflation.
Should you hold or sell new shares?
Do you want to be an active trader or a buy-and-hold investor? Choosing between these distinctions will impact how long you hold a stock in your portfolio. There is no right or wrong answer, although one avenue takes a lot more time and energy to be correct.
Long-term investing is the backbone of many retirement plans, and it makes sense to consider the types of stocks on this list. Buy-and-hold investors have time frames measured in years or decades and can withstand bouts of volatility. Buy-and-hold investors typically buy blue chip companies or broad index funds to capture market gains without taking on too much risk.
Active traders will buy and sell stocks on short notice, looking for extra profits that accumulate day after day. Traders who buy and sell new stocks do not rely on economic data or corporate earnings reports, but on stock chart patterns and trend-following signals. The knowledge of technical analysis consists of buying and selling stocks in the short term.
Benefits of investing in stocks
Although not all years in the market are good, investing in stocks for the long term is generally a productive use of capital. A strong stock portfolio has many benefits, including:
Protection of purchasing power: Inflation does not usually run at 8% per year, but it can generally be assumed that moderate inflation is occurring. The Federal Reserve’s target target is 2%, which means purchasing power will decline over time if money is stuffed under the mattress or in savings accounts, earning a paltry 35 points basic. Putting money into stocks can preserve the purchasing power of capital over time if markets move up (as they typically do over periods of decades).
Share price appreciation: A diversified stock portfolio will prevent your capital from suffering too much risk from individual stocks, but a few big winners in a portfolio can cause account value to appreciate exponentially. Investors who have bought and held stocks like Amazon, Google and NVIDIA over the past decade have been handsomely rewarded for their patience.
Beneficial tax considerations: Profits on shares held for more than a year will be taxed at the long-term capital gains rate, which is much more taxpayer-friendly than the ordinary income rate. Additionally, investors holding stocks in tax-advantaged accounts like 401(k) plans or IRAs can defer taxes until retirement. Or, in the case of a Roth IRA, taxpayers fund the account with after-tax dollars and pay no tax on investment gains in retirement.
Frequently Asked Questions
questions and answers
What is the most reliable stock to buy?
The most reliable stocks in terms of low volatility tend to be companies in sectors such as consumer staples, utilities, energy and industrials. These companies can lag the market during bull markets, but generally hold up better than other industries during bear markets.
Which stocks will rise the most?
Growth stocks typically reside in the technology sector where research and development take precedence over profitability and dividend payout. Growth stocks benefit from deflationary environments where money is cheap to borrow and investors are more concerned with expansion and customer acquisition than profit margins.