- Wondering where to invest during inflation? Here are three stocks to buy.
- Berkshire Hathaway (BRK/B): A reliable stock that is at its best when markets are at their worst.
- Coca-Cola (KO): A company that has incredible pricing power thanks to its loyal customer base.
- Devon Energy (DVN): The oil company is reaping the benefits as consumers pay sky-high prices at the gas pumps.
Legendary investor Warren Buffett recently summed up the impact of inflation on investors best, saying, “Inflation swindles the bond investor… it swindles the person who keeps their cash under their mattress, it swindles almost everybody.”
This is especially true with inflation in the U.S. currently running at a 40-year high. Consumer prices in March surged by 8.5%, marking the largest annual gain since December 1981. The rise was largely due to a double-digit rise in energy prices. The high inflation rate has prompted the U.S. Federal Reserve to begin raising interest rates, something markets do not like as it makes the cost of borrowing money more expensive for companies.
This has largely been contributing to the downturn in stock markets over the past month. However, despite the downturn, there are some stocks that have remained resilient and even managed to rise in the current inflationary environment.
Here are three top investments to consider during the current high period of inflation.
The holding company run by legendary investors Warren Buffett and Charlie Munger just had its annual meeting in Omaha, Nebraska. Dubbed “Woodstock for capitalists,” the event draws tens of thousands of Berkshire Hathaway (BRK/A, BRK/B) shareholders each year to sit at the feet of Buffett and Munger and hear them expound on all things investment related.
At the meeting, it was revealed which stocks Berkshire Hathaway had added to its portfolio during the inflationary first quarter. The company loaded up on additional shares of Apple (AAPL) and Chevron (CVX) as their prices slumped. Both Apple and Chevron are now among Berkshire’s top four holdings.
Shares of Berkshire Hathaway, which also owns a diverse number of companies ranging from insurer Geico to the Dairy Queen fast food restaurant chain, have been performing admirably this year as the broader stock market has gotten walloped by inflation, the war in Ukraine and supply chain constraints, among other problems.
So far in 2022, BRK/B stock has gained 6.5% to trade at $317.99 a share at the start of May 6. That’s a big outperformance compared to the benchmark S&P 500 index (.SPX), which is down 13% on the year. As is typically the case, Berkshire Hathaway’s stock tends to be at peak performance in times of market turmoil when investors seek safe haven assets.
Another one of Warren Buffett’s largest holdings is Coca-Cola. Berkshire Hathaway has owned 400 million shares of KO stock for over 30 years now, having never sold any of its initial investment in the Atlanta-based company. Buffett has concluded rightly that Coca-Cola stock is a good investment in good times and bad.
In an inflationary environment, Coca-Cola has the most powerful weapon in any company’s arsenal: pricing power. Coke is able to increase its prices and largely pass the cost of inflation onto consumers without losing a significant amount of customers. This pricing power comes from a devoted customer base, many of whom drink Coca-Cola every day.
Year to date, KO stock is up 9% at $64.20 per share. Over the past 12 months, the company’s share price has advanced 19%. That is a much better performance than most other stocks that are deeply in the red in a down market.
Coca-Cola has managed to buck the downturn, not only with its pricing power, but also by maintaining solid earnings. The company just reported that its organic sales growth in this year’s first quarter rose 18% compared to 9% in the final quarter of 2021. Revenue rose 16% for all of last year, and Coca-Cola has forecast that it will generate $12 billion in operating cash this year. That kind of strength has prevented Coca-Cola stock from being pulled down into the red.
High prices at the gas pump are bad news for consumers, but they are a boon to energy companies. And among the oil producers, none have performed better this year than Oklahoma City-based Devon Energy. Year to date, DVN stock is up 56% to $68.61 per share. In the last 12 months, the company’s share price has gained 171%, making it a top performer by any measure.
Credit for the stock’s success goes to elevated prices for crude oil, which has remained above $100 a barrel for most of the time since March. The company focuses on oil and natural gas and is a well-diversified oil concern.
Devon Energy just knocked it out of the park with its latest earnings report. And while analysts were impressed, shareholders loved that Devon announced it is increasing its dividend payout by 27% to a record $1.27 per share. The company also lifted its share repurchase program by 25% to $2 billion, adding further value to shareholders.
As for its earnings, Devon reported that its total oil production rose to 575,000 barrels per day in the first quarter, up from 499,000 barrels a day a year earlier. Earnings per share amounted to $61.40, up 57% from $39.14 a year ago as oil prices and demand continue to rise. Again, that’s bad for consumers but good for DVN stockholders.
On the date of publication, Joel Baglole held a long position in AAPL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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