The stock market recorded its first down quarter in two years to kick off 2022 as elevated inflation pressures American consumers. The consumer price index jumped 7.9% year over year in February, its largest gain since 1982. Even Federal Reserve Chairman Jerome Powell recently admitted that "inflation is much too high," and investors are growing increasingly concerned that inflation could be here to stay. Bank of America recently compiled a pro-inflation stock screen to identify stocks that have historically demonstrated a strong positive correlation with inflation. Here are seven inflation investments for investors looking to protect their portfolios.
Baker Hughes Co.
Baker Hughes (BKR) is an oilfield-services company that provides equipment and technology to the oil and gas industry. Analyst Doug Leggate says General Electric Co. (GE) should sell its remaining stake in Baker Hughes by July, and management will begin returning between 60% and 80% of free cash flow to BKR shareholders. Baker Hughes has the highest positive historical correlation to inflation of any stock Bank of America covers, and Baker Hughes' more than 50% year-to-date gain in 2022 suggests that correlation is alive and well. Bank of America has a "buy" rating and $44 price target for BKR stock, which closed at $37.52 on April 8.
BorgWarner (BWA) supplies drivetrain systems and components to the auto industry. Analyst John Murphy is bullish on BorgWarner's Charging Forward initiative, which includes goals such as $2.5 billion in electric vehicle organic sales in 2025, $2 billion in mergers and acquisitions by 2025, and $3.5 billion in dispositions by 2025. Supply chain issues have disrupted the global auto industry. However, Murphy says BorgWarner's 7% decline in revenue in the fourth quarter was significantly better than the 15% decline in global auto production in the quarter. Bank of America has a "buy" rating and $65 price target for BWA stock, which closed at $36.41 on April 8.
Newmont (NEM) is the world's largest gold producer, and the price of gold is up 6.8% in 2022. Gold is a classic inflation hedge, so it's no surprise Newmont shares are up 31% year to date. Analyst Michael Jalonen says Newmont management is prioritizing all the right goals, including reinvesting in the business, maintaining a strong balance sheet and returning capital to shareholders. Newmont management has said it expects production and costs to continue to improve each quarter through the end of the year. Bank of America has a "buy" rating and $75 price target for NEM stock, which closed at $82.12 on April 8.
Corning (GLW) produces glass substrates used by the electronics industry and fiber optic equipment used by the telecommunications industry. Analyst Wamsi Mohan says the glass pricing environment is favorable, and price hikes should boost Corning's margins. In addition, 5G upgrades should help drive demand in coming quarters. Mohan says adoption of Corning's damage- and scratch-resistant Gorilla Glass and increasing smartphone and auto content will be bullish catalysts for the stock. Finally, Mohan says Corning should benefit from a shift to larger-screen TVs and computer displays. Bank of America has a "buy" rating and $48 price target for GLW stock, which closed at $34.09 on April 8.
American Tower Corp.
American Tower (AMT) is a specialized real estate investment trust, or REIT, that operates the world's largest network of wireless communications and broadcast towers. Analyst David Barden says the tower business is inherently stable and consistent, and it generates steady revenue growth as wireless networks expand and the global wireless subscriber count grows. Barden says AMT is the most conservative and least-leveraged tower stock. In 2022, AMT is planning to expand its network further by building another 4,000 towers in India and 1,900 in Africa. Bank of America has a "buy" rating and $315 price target for AMT stock, which closed at $266.41 on April 8.
KLA (KLAC) produces yield monitoring and process control systems for the semiconductor industry. Analyst Vivek Arya says investors should look beyond KLA's near-term supply chain noise and focus on the company's longer-term bullish trends and execution. A strong backlog and improving supply chain visibility has KLA on track to generate 20% revenue growth in 2022, and Arya says wafer fabrication equipment trends are positive. Arya says KLA generates best-in-class free cash flow margins of 31% and has committed to returning at least 70% of free cash flow to shareholders. Bank of America has a "buy" rating and $500 price target for KLAC stock, which closed at $341.21 on April 8.
Eastman Chemical Co.
Eastman Chemical (EMN) is a highly diversified chemical company that is significantly exposed to soaring oil prices via its petrochemical business. Analyst Matthew DeYoe is projecting 7.6% earnings per share growth in 2022 and says Eastman has multiple growth levers that make the stock an attractive value at current levels. DeYoe says polyester renewal technology will bolster Eastman's underlying organic revenue growth, and buybacks give the company an impressive earnings-per-share growth outlook. Eastman shares also pay a 2.7% dividend. Bank of America has a "buy" rating and $150 price target for EMN stock, which closed at $108.19 on April 8.
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