Inflation is at a new 40-year-high, but how can I protect myself against inflation?
What are 2 sectors that are doing well right now and how to take advantage of this gloomy recession?
Suze Orman, the New York Times Bestselling author on Personal Finance, recently wrote on her site that you should “keep investing in stocks” to hedge against rising costs.
Investing is still the single most effective way to get rich. Inflation can be bad for individuals when you just keep your money sitting in a bank account and do nothing else with it.”
According to Warren Buffet, “The best businesses during inflation are the businesses that you buy once and then you don’t have to keep making capital investments subsequently,” while you should avoid “any business with heavy capital investment.”
Across the energy sector, it is much easier to find energy stocks that are in positive territory this year than to find those that aren’t.
ExxonMobil ranks as the biggest energy stock of all, with a market cap of more than $350 billion. Its shares have skyrocketed close to 40% year to date and were up as much as 71% earlier this month.
The second-biggest energy company, Chevron, has also delivered impressive gains. Shares of the oil and gas giant are up more than 20%.
You don’t have to be a rocket scientist to understand why these stocks and others in the energy sector are performing so well. Energy demand has increased significantly as the global economy emerges from the shadow of COVID-19, and Russia’s invasion of Ukraine has disrupted the supply of oil and gas. A combination of higher demand and lower supply inevitably leads to higher prices.
It’s possible that fuel prices could come down somewhat over the near term. However, the European Union plans to ban most Russian oil imports by the end of this year. That could keep prices at high levels for a while and keep the energy sector as one of the best places for investors to park their money.
The second sector where the biggest market caps have soared 20% in 2022 is the healthcare sector.
Vertex Pharmaceuticals – The big biotech stock has vaulted nearly 30% higher so far this year.
Bristol Myers Squibb (BMY 0.00%) isn’t too far behind Vertex. Shares of the big biopharmaceutical company have jumped more than 25% year to date.
These and other big drug stocks have performed well overall, in part because some investors view them as safe havens. Physicians won’t stop prescribing Vertex’s and Bristol Myers Squibb’s medicines just because inflation is high, or interest rates are rising.
Large drugmakers typically generate steady cash flow. Many of them also pay dividends – although Vertex doesn’t.
Vertex and Bristol Myers Squibb have outgained their peers, though, due to their unique catalysts. Both companies have benefited from positive clinical and regulatory developments this year.
Recently, Vertex has been advancing a VX-147 drug for the treatment of APOL1-mediated kidney disease into late-stage testing. This was an experimental drug that was recently given breakthrough therapy designation by the FDA and PRIME designation from the European Medicines Agency.
Bristol Myers Squibb has recently announced positive late-stage results for mavacamten and it can now move forward in the FDA approval process. The heart failure drug is predicted to generate peak annual sales of $4 billion.
Investors must do their homework before buying healthcare stocks; some will be more susceptible to economic headwinds than others. However, big drugmakers with strong product line-ups and promising pipelines should have a good chance of outperforming the market this year.
There is one more sector we should forget, this sector has been historically a safe haven for fund managers during the 2008 recession.
Usually, investors buy consumer staples regardless of the state of the economy and the amount bought is relatively fixed in good times and bad. As matter of fact, the consumer staples sector behaves much differently than consumer discretionary businesses such as restaurants, hotels, and apparel, or consumer durables, which are long-lasting products such as furniture and electronics.
Consumer Staples have lower profit growth and revenue growth rates than other sectors. However, they provide reliable profits as well as dividends and defensive positioning.
Consumer staples stocks function in a non-cyclical manner, meaning they offer investors safety during recessionary climates.
Since these companies sell goods such as food and cleaning products that consumers rely on regardless of the state of the economy, they tend to generate solid profits even in weak economies. For instance, during the COVID-19 pandemic, these companies thrived as people began stockpiling essentials, avoiding buying nonessentials like travel and restaurant food.
Like other consumer staples companies, received a healthy boost from the pandemic. However, the company’s results have continued to be strong, with organic sales (which exclude the effects of acquisitions, divestitures, and currency exchanges) up 10% during the fiscal third quarter ending June 30, 2022.
Core earnings per share also rose 6%. Notably, the organic sales gain was driven by a mixture of higher volume, price increases, and selling more higher-priced items. The company is hitting on all cylinders.
Even if a company has successfully passed on price hikes to date that’s no guarantee it will be able to do so again. Consumers will draw a line, and every line will be different.
We want to conclude this video with another Warren Buffett quote: “I do not think the average person can pick stocks, in the long run, S&P 500 index fund is usually a safe bet for most people.
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