The Best Stocks to Buy to Fight Inflation

After peaking above $5 per gallon in mid-June, the good news is gas prices are declining and nearing $4 per gallon. Commodity and food prices are coming down too. However, inflation is still near a 40-year high in 2022. The last time we had inflation like this, Ronald Reagan was the President.

As investors, we are concerned about inflation because it causes higher input costs for companies. In turn, greater expenses put downward pressure on margins making companies less profitable. As a result, less earnings growth or, even worse, lower earnings tends to impact stock prices negatively.

So what’s an investor to do? It’s probably not possible to entirely inflation-proof your stock portfolio. However, you can fight inflation with a more diversified portfolio. Below we discuss some of the best stocks to buy for that purpose.

What is inflation? It is the increase in the prices of goods and services, reducing the buying power of the US dollar or any other currency. For example, when milk prices rise over time, the same $1 buys less. As a result, consumers lose buying power unless their incomes follow suit and increase as well.

What is Inflation?

Inflation Lowers Stock Market Returns

Besides affecting the profitability of companies, inflation broadly affects the stock market. Most research suggests that high inflation causes low real returns for stocks. Real returns are nominal returns minus inflation. Additionally, inflation causes greater volatility, and the market’s ups and downs in 2022 seemingly confirm this point.

Next, inflation tends to punish riskier assets. Riskier usually means growth stocks in the stock market, while value stocks are on the other end of the risk spectrum. For instance, many growth stocks rapidly increase revenue, but profits often follow much later because the companies invest in growing. Think of Amazon (AMZN) during its early years.

Value Stocks Usually Perform Better

The Best Stocks to Buy to Fight Inflation

The Coca-Cola Company (KO) needs no introduction to most people. It has one of the most recognizable brand names in the world. The company is the world’s largest non-alcoholic beverage company, with a presence in more than 200 countries.


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