Inflation is rampant, as you’ve undoubtedly noticed during your recent shopping trips. Consumer prices soared 8.3% in the 12 months through April.
In your investing, you might want to stay away from stocks that suffer during inflationary periods. On May 17, TheStreet gave you names from a Bank of America list of stocks that do well in those times.
Here are some companies that suffer. They’re culled from a Bank of America list that includes S&P 500 companies whose relative performance has a strong negative relationship to the investment firm's inflation composite.
The inflation statistics go back to 1975, and Bank of America excluded stocks with less than 20 years of data.
· Amazon (AMZN), the online retailer and tech provider
· Amgen (AMGN), the biotechnology company
· Clorox (CLX), the household-products icon
· Ball (BLL), which provides aluminum packaging for consumer products
· Home Depot (H), the home-improvement chain
· Waste Management (WM), the environmental-services provider-
· Brown & Brown (BRO), an insurance company
· Cisco Systems (CSCO), the networking technology company
· Consolidated Edison (ED), a utility
· Walmart (WMT), the world's largest retailer
Morningstar on Home Depot
Regarding Home Depot, Morningstar analyst Jaime Katz saw some signs of strength in its latest earnings report, released May 17.
“Home Depot reached a zenith in sales (up 3.8%), helped by comparable average ticket growth of 11.4%, with [2.4 percentage] points from inflation,” she wrote in a commentary. To be sure, the transaction count fell 8%. The quarter ended May 1.
In any case, “Home Depot continues to benefit from housing dynamics like home price appreciation and a shortage in home inventory, despite rising mortgage rates,” Katz said.
“More importantly, customers are trading up to premium products, thanks to continued product innovation, further supporting top-line growth.”
In light of the earnings news, Katz plans to raise her fair-value estimate for the stock by a low-single-digit percent rate from the $255 presently. She sees Home Depot as overvalued, based on a recent quote of $288.29.
Walmart
Turning to Walmart, Morningstar analyst Zain Akbari offered a mixed view of the company after its May 17 earnings report.
Earnings for the April 30-ended quarter “saw greater-than-anticipated margin pressure caused by pandemic-related factors and inflation,” he said in a commentary.
“Still, we believe Walmart’s value proposition should become increasingly valuable to strained consumers.”
He expects low-single-digit annual percentage sales growth and mid-single-digit adjusted operating margins over the next decade.
In the latest quarter, “sales were strong, with inflation and consumers’ focus on value driving Walmart’s global top line up 2.4%,” Akbari said. “However, its operating margin lagged our 4.8% estimate at 3.8%.”
Given the earnings, Akbari anticipates cutting his fair value for the stock almost 10% from $152 currently. He sees Walmart as undervalued, given recent trading at $122.11.
The author of this story owns shares of Amazon, Amgen, Clorox, Cisco, Consolidated Edison and Walmart.
