15 actions to keep inflation under control in your portfolio

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Photovoltaic modules on an AES Tiete solar farm in São Paulo state, Brazil, in April.

Jonne Roriz / Bloomberg

Inflation has become severe enough to make it a concern for consumers, the Federal Reserve and the investing public. Investors expect interest rates to rise as the Fed struggles with rising prices, which caused stocks to sell off at the start of the year.

But there’s no need to sit back, watch, and worry when stock prices fall. Investors can position their portfolios for inflation, although it will likely not be easy to avoid any effect. Inflation has not been this high for over a generation.

The Consumer Price Index, or CPI, rose 6.8% year-on-year in November, the most recent reading released by the Bureau of Labor Statistics. This is the highest level since the early 1980s. Data for December is expected to be released Wednesday morning.

With inflation on the move, investors might want to look into the past to see what worked during previous periods of price spikes. Hartford funds strategist Sean Markowicz recently discovered that five sectors tend to produce positive returns in times of inflation: utilities, real estate investment trusts, energy, consumer staples and health care.

MORE ESSENTIAL READING ON INFLATION

REITs and energy can beat inflation because of, well, inflation. Real estate and oil prices can go up with the cost of everything else. Utilities, basic goods and health care, on the other hand, are relatively essential. Demand in these sectors does not decline even if the prices of electricity or breakfast cereals must increase to allow companies to maintain their profit margins.

These five areas seem like a good starting point for building an inflation-protected portfolio, but picking the best stocks in these areas is another challenge. This is where Wall Street can help.

Barron researched the three most popular stocks in each of the five sectors, based on analyst ratings. the


Russell 1000 Index

large cap stocks was our universe to choose from. All 15 actions, in no particular order, are included below. Think of them as a starting point for further research rather than a fully developed portfolio.

REIT:


Alexandria real estate actions

(ticker: ARE),


Communities of the Sun

(SUI), and


Houses Invitation

(INVH).

Energy:


Chénière Energy

(LNG),


Oil Marathon

(MPC), and


ConocoPhilips

(COP).

Utilities:


AES

(AES),


CenterPoint Energy

(CNP), and


NiSource

(OR).

Basic consumer products:


Spectrum Marks

(SPB),


Mondelez International

(MDLZ), and


Philip Morris International

(PM).

Health care:


Avantor

(AVTR),


Encompass health

(EHC), and


Health Sotera

(CHS).

Overall, around 90% of analysts covering the 15 companies rate stocks Buy, while the average buy rating ratio for stocks in the Russell 1000 Index is around 60%.

Name / Ticker Buy odds ratio Upside down PE ratio 2022 Sector
Alexandria Real Estate / ARE 100% 12% 52.1 REIT
Sun / SUI Communities 100 17 56.1 REIT
Spectrum Brands / SBP 100 25 30.2 Staples
Avantor / AVTR 100 24 27.7 Health care
Encompass health / EHC 100 32 15.2 Health care
Invitation Houses / INVH 100 46 24.9 Health care
Chenière / LNG 96 19 124.1 Energy
AES / AES 92 31 15.1 Utilities
Marathon / CMP 89 ten 40.1 Energy
ConocoPhillips / COP 87 14 13.6 Energy
Mondelez / MDLZ 86 seven 23.2 Staples
NiSource / NI 83 5 20.5 Utilities
Invitation Houses / INVH 81 11 93.9 REIT
Philip Morris / PM 76 9 16.6 Staples
Central point / CNP 76 6 19.4 Utilities

Bloomberg

The average potential gain based on analysts’ target prices for the 15 stocks is around 20%. This corresponds to the Russell 1000 average, but the potential gains within the index vary widely by industry.

All 15 stocks have done well, averaging around 27% gain over the past year. The Russell 1000 Index is up about 20%. the


S&P 500

and


Dow Jones Industrial Average

are up 23% and 16% respectively.

Twelve of the 15 stocks are up in the past year. Encompass Health, Sotera and AES fell.

Of course, it is not certain that stocks that have done well in the past will continue to do so. There is no guarantee that sectors that have comfortably survived past periods of high inflation will fare well this time around. Still, the 15 are a good start for anyone looking for shelter.

About Mary Moser

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