With inflation raging and the economy likely to slow down, the threat of stagflation looms.
Stagflation, of course, is that odd combination of weak (or no) economic growth and high inflation.
Consumer prices soared 8.3% in the 12 months through April. And the economy shrank an annualized 1.4% in the first quarter.
While the drop was attributed to special factors, inflation and the Federal Reserve’s interest-rate increases could weigh on the economy going forward.
So investors might want to consider investments that can withstand stagflation. Bank of America put together a list of stocks that may fit the bill.
The investment firm screened S&P 500 companies for the best relative performance during periods of stagflation. It defined stagflation as below-trend growth and above-trend inflation. The firm included only stocks with data available back to 1968.
Here are the top 10 picks, as measured by their median return during the stagflation periods.
· Kroger (KR), the country’s largest grocery store chain. Return: 23.4%
· Teleflex (TFX), a medical equipment maker. Return: 19.5%
· Hershey (HSY), the candy company. Return: 18.3%
· DXC Technology (DXC), an information technology services company. Return: 17.7%
· Brown-Forman, (BF.A) (BF.B) a liquor producer, including Jack Daniels. Return: 15.5%
· Lowe’s (LOW), the home-improvement retailer. Return: 15.3%
· Archer-Daniels-Midland (ADM), a food processing company. Return: 14.6%
· Automatic Data Processing (ADP), a human resources software company. Return: 13.3%
· Johnson & Johnson (JNJ), the health-care major. Return: 12.8%
· Dover (DOV), an industrial-products group. Return: 12.3%
Morningstar Looks at Kroger...
Morningstar analyst Zain Akbari has a positive view on Kroger. He assigns it a narrow moat and puts fair value at $47.50, compared with its recent quote of $47.66.
“Of the traditional grocers, we believe Kroger is uniquely positioned to defend its returns against a competitive onslaught that should intensify as Amazon (AMZN), mass merchandisers, and hard discounters price aggressively to boost volume,” he wrote in a commentary.
“Industry factors are diminishing its competitive standing, but we contend that Kroger still benefits from enduring intangible assets and cost advantages.”
...and at Teleflex
Morningstar analyst Aaron Degagne offers positive comments about Teleflex, writing in a commentary that its growth and profit outlook are "strong."
Growth is likely to stay in the mid- to upper-single-digit percent range over the next few years, he said. “And restructuring and transformation efforts should improve the firm’s margin profile, which has generally trailed peers.”
To be sure, Degagne assigns the company no moat. “Despite Teleflex operating in oligopolistic markets in a broad swath of its portfolio, the firm has had difficulty achieving consistently positive excess returns over the past decade,” he said.
He puts fair value at $211, compared with a recent quote of $285.27.
The author of this story owns shares of Johnson & Johnson.
