In March, the U.S. consumer price index gained 8.5%, its highest inflation growth reading since 1981. Federal Reserve Chairman Jerome Powell recently said combating inflation is "absolutely essential," and a potential 0.5% interest rate hike is "on the table" heading into the Fed's next meeting in May. High inflation coupled with slowing economic growth creates the bearish economic condition known as stagflation. But not all stocks suffer during stagflationary periods. These seven buy-rated stocks have historically outperformed during periods of rising inflation and below-average economic growth, according to Bank of America analysts.
Kroger Co. (KR)
Kroger is one of the largest pure-play grocery companies in the U.S. Even when prices are rising and the economy is tanking, Americans still need groceries. Kroger shares have averaged a 20.5% return during historical periods of stagflation, making the company the best-performing stagflationary stock among 165 members of the S&P 500 since 1968, according to Bank of America. In fact, analyst Robert Ohmes says Kroger is passing higher grocery prices on to its customers, a dynamic that could help Kroger generate earnings upside. Bank of America has a "buy" rating and $75 price target for KR stock, which closed at $57 on April 22.
Hershey Co. (HSY)
According to Bank of America, stagflation has no impact on a shopper's sweet tooth. U.S. confectionary leader Hershey is another top performer in stagflationary environments, averaging a 15.9% return during periods of elevated inflation and slowing economic growth. Analyst Bryan Spillane says Hershey has maintained its underlying sales momentum in recent quarters, even in the face of difficult year-over-year comparisons. Spillane says Hershey deserves a premium valuation relative to peers, and its strong balance sheet creates opportunities to invest in future growth. Bank of America has a "buy" rating and $225 price target for HSY stock, which closed at $224.14 on April 22.
Abbott Laboratories (ABT)
Abbott Laboratories is a diversified health care products company that produces nutritional products, generic drugs, and diagnostic and medical devices. Analyst Travis Steed says Abbott delivered another strong quarter to kick off 2022, reporting 11.5% organic device sales growth and 7.7% organic sales growth in its base business. Steed says headwinds from China's COVID-19 lockdowns appear manageable, and he expects Abbott to maintain double-digit earnings growth and a premium valuation relative to peers. Abbott has averaged a 14.9% gain during periods of stagflation. Bank of America has a "buy" rating and a $140 price target for ABT stock, which closed at $119.64 on April 22.
Ecolab Inc. (ECL)
Ecolab provides water, hygiene and energy technologies to the food services, hospitality, health care and other industries. Analyst Steve Byrne says cost pressures in raw materials are unlikely to subside anytime soon, but Ecolab has resilient end markets and pricing power. Byrne is increasingly bullish on Ecolab given the company's products are not discretionary. In addition, the COVID-19 pandemic has underscored the importance of water treatment and sanitary products. The company has averaged a 13.2% gain during periods of stagflation. Bank of America has a "buy" rating and a $196 price target for ECL stock, which closed at $175.20 on April 22.
CVS Health Corp. (CVS)
CVS Health is the largest U.S. pharmacy health care provider. CVS shares have significantly outperformed the broader market in the past six months, but analyst Michael Cherny says the stock still has room to the upside. Cherny is anticipating steady improvements for CVS across the board. In addition, his positive outlook does not include any meaningful fourth COVID-19 booster shot sales or pediatric vaccination activity, either of which could generate earnings upside. CVS has generated an average return of 12.9% during stagflation periods. Bank of America has a "buy" rating and a $121 price target for CVS stock, which closed at $101.68 on April 22.
Schlumberger Ltd. (SLB)
It's no surprise shares of oilfield services company Schlumberger are up nearly 40% year to date. The Russian invasion of Ukraine has driven oil and natural gas prices to their highest levels in more than a decade. Schlumberger recently reiterated its previous 2022 guidance, which analyst Chase Mulvehill says comes as a relief to investors concerned about Russia headwinds. Schlumberger also raised its quarterly dividend by 40% to a new yield of about 1.7%. Historically, Schlumberger stock has averaged a 12.3% gain in stagflation periods. Bank of America has a "buy" rating and a $49 price target for SLB stock, which closed at $41.65 on April 22.
Baxter International Inc. (BAX)
Baxter provides medical products and services that specialize primarily in dialysis and renal care. Steed says Baxter's 2022 earnings estimates are likely too low, and the stock has earnings multiple expansion opportunities once it fully integrates its recent Hillrom acquisition. Steed says Baxter's next analyst day event could provide investors with much-needed clarity on the company's long-term financial outlook and also serve as a bullish catalyst for the stock. Baxter has averaged an 11.8% gain during past periods of stagflation. Bank of America has a "buy" rating and a $100 price target for BAX stock, which closed at $73.08 on April 22.
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