The last time the annual inflation rate topped 2.5% was 2011, when it hit 3%. As of November 2020, it was a mere 1.2%. And although many economists expect price rises to remain tame, some predict that stepped-up inflation may surface as pent-up demand surges among consumers freed by new COVID-19 vaccines…and trillions of dollars in stimulus money bolsters global economies that were hit by the pandemic-induced recession.
For investors, that can be a big problem. Rising costs can eat into profits for some companies…and that can push up interest rates, which hurts bond prices and tends to pull investors away from stocks, depressing those prices.
What to do: Cushion the effects of swelling inflation by investing in companies that benefit from global economic expansion and rising prices. Good candidates can be found in the materials and industrial sectors, especially those businesses that can pass along their rising production costs to customers. My favorites now…
Freeport-McMoRan (FCX), the world’s largest copper miner, will see stronger profits due to a 60% jump since last spring in the price of copper—-essential for home construction and electric-vehicle production. Recent share price: $24.63.
Caterpillar (CAT) is a global leader in producing heavy machinery. Rising commodity prices will lead Caterpillar’s customers, ranging from industrial metal-mining firms to agricultural companies, to buy more of Caterpillar’s excavators, backhoes and bulldozers. Recent share price: $180.96.
Cummins (CMI). This century-old company will see demand rise for diesel engines that power big-rig trucks and trains used to haul commodities and other goods. Also, investors are underestimating the profit potential of Cummins’s new “clean–energy” engines that use fuel cells and hydrogen technology. Recent share price: $224.31.