How to take advantage of an inflationary environment
It’s time to face the music.
Inflation is at its highest level in 40 years, with the yield on 10-year treasury bills recently rising above 2.3% for the first time since May 2019. Yields on three-year, five-year, 20 years and 30 years are at 2.38%, 2.39%, 2.71% and 2.6%, respectively.
In other words, the yield curve is basically flat, which means that yields are very similar across the board. When this happens, it could indicate that we are entering an economic downturn. In fact, the Atlanta Fed expects first-quarter GDP growth to slow significantly to 1.3%.
Now the Federal Reserve is looking to curb this hideous inflation by raising rates. As I covered last week, the Fed approved an interest rate hike of a quarter percentage point and said it expects each of the six remaining FOMC meetings to represent a chance to raise rates further.
This sparked panic selling, but the market rebounded after Fed Chairman Jerome Powell reassured investors that the central bank would gradually raise key interest rates.
However, on Monday, Fed Chairman Jerome Powell took a more hawkish stance and said the Fed would go even further and raise rates more significantly if necessary to reduce inflation which is “far too high “. This could mean that the Fed will decide to raise rates more than expected at its next meeting – by half a percentage point instead of a quarter of a percentage point.
The problem is that if the Fed goes too far with rate hikes and the yield curve inverts – when long-term yields are lower than short-term yields – it will hurt the economy and the banks that the Fed regulates. In fact, the yield curve briefly inverted twice this week when the yield on the two-year Treasury passed the five-year Treasury, and then on Wednesday morning when the five-year Treasury passed the 10-year Treasury.
Now I’ve heard talking heads on financial news recommending financial stocks. If you have them too, I encourage you to ignore them. People, this is a big mistake right now. Banks are not good investments in a flat yield curve environment like the one we find ourselves in. Personally, I am not a fan of banks. I worked for a division of government that is now part of the Federal Reserve. During my time there, I saw how they “cooked their books” and it marked me for life. The other big problem with an inverted yield curve is that this is also what happens before you enter a recession.
The fact is that central banks in the United States and Europe are faced with their policy of unlimited money printing known as modern monetary theory. The question is: can they recall it?
I’ll tell you…I don’t think so.
And that’s why I think the Fed will take small steps.
I also think we are going to have stagflation, where inflation will persist while the economy stagnates.
This high inflationary environment reminds me in some ways of the late 70s and 80s. It was an exciting time for the stock market, as fundamentally superior actions are clearly an excellent hedge against inflation, just like real estate.
Interestingly, as the Fed looks to raise rates, existing home sales fell 7.2% in February from the previous month and 2.4% from a year earlier. In fact, the supply of existing unsold homes increased in February. Potential buyers face both rising interest rates and rising house prices.
In the midst of all this Fed infighting and confusion, you’re probably wondering… what should an investor do?
The answer is to just load on fundamentally superior stocks that can act as an inflation hedge that thrive in the current market environment.
Choosing Superior “Inflation Hedge” Stocks
Example : Marathon oil (NYSE:RRM).
The company was founded primarily as an oil producing company (Ohio Oil Company) in 1887. For the first 90 years, the company operated as an integrated oil company. But since splitting off the refining business in 2011, Marathon Oil has operated as an independent exploration and production company.
The Company operates primarily in the United States, with facilities and wells in the four major oil-producing basins in the United States: Eagle Ford, Bakken, STACK/SCOOP and the Permian Basin.
And at the end of 2021, Marathon Oil had proven reserves of 1,106 million barrels of oil equivalent per day, a 14% year-over-year increase.
So it’s not too surprising that Marathon Oil also beat analysts’ expectations for its revenue and earnings growth in the last quarter. Fourth-quarter revenue increased 24.1% year-on-year to $1.8 billion, beating estimates of $1.54 billion. Fourth-quarter earnings jumped 97.4% year-on-year to $592 million, or $0.77 per share, smashing analyst estimates of $0.55 per share by 40%.
Following better than expected results, the analyst community has revised upwards its forecasts for the first quarter. Earnings are now expected to rise 200% year over year to $0.63 per share, up from previous estimates of $0.56 per share. As you know, positive analyst reviews usually precede future earnings surprises.
I should also add that Marathon Oil is committed to rewarding its shareholders. The company generated more than $2.2 billion in free cash flow in 2021, including $900 million in the fourth quarter. Marathon Oil then returned more than 70% of its fourth quarter cash flow to investors. The company’s first quarter dividend of $0.07 per share will be paid on March 10 to all shareholders of record on February 16. The stock has a dividend yield of 1.3%.
I recommended the stock to my Growth investor subscribers about a month ago, and as you can see below, Marathon Oil continues to earn top marks in my portfolio binder.
The company has a total rating of “A”, a fundamental rating of “B” and a quantitative rating of “A”, representing the institutional buying pressure under the stock.
So far this year, Marathon Oil’s stock has risen more than 56%, crushing the S&P500 6.2% fall over the same period.
But Marathon Oil is far from the only stock I see benefiting from the current inflationary environment.
As always, our best defense is a strong attack from fundamentally superior actions that thrive on inflation. That’s why I’m so excited about my Growth investor shares. I was waiting for my Growth investor stock sales and earnings forecasts are slowing due to tougher year-over-year comparisons.
However, thanks to new additions to the Growth investor Buy list, plus the fact that many of the existing stocks on the buy list are great inflation hedges, my average Growth investor is now characterized by an average annual growth in sales of 51.4% and an average annual growth in profits of 370.9%!
This is why they have shown tremendous relative strength and are enjoying an end-of-quarter showcase. Institutional investors rely on my stocks because these are the stocks that will make their clients’ portfolios “pretty”.
I expect similar performance for the six new stocks I will add to my Growth investor Buy lists on Friday. I’ll post their names, symbols, and why I like these companies after Friday’s close. To position yourself early, I recommend that you register for my Growth investor service now. (If you join my Platinum Growth Club Where Omnia services, not only will you receive my latest Growth investor recommendations, but you will also have full access to recommendations in all my other services. This includes Revolutionary actions, Accelerated benefits, Power Portfolio 2022 and Power options.)
Three of the new stocks are fertilizer companies that are profiting from soaring natural gas prices, as well as the disruption of fertilizer shipments from the Ukraine-Russia conflict.
Two new stocks are US energy companies that are taking advantage of high crude oil and natural gas prices, and they are key to helping make the US energy independent again. Finally, I add a building materials supplier who is taking advantage of soaring building material prices.
In other words, all of our new purchases are poised to take advantage of soaring inflation!
Click here to become a Growth investor subscriber today.
PS At present, successful Americans like us have a target behind their backs.
We face a direct threat to our security and prosperity.
Values we hold dear, such as individual freedom, hard work and financial responsibility have been pushed aside.
The US national debt is growing at an unprecedented rate. And more expenses are to come.
The cost of essential goods and services seems to be getting more expensive day by day. Critical materials have been out of stock for months. Grocery store shelves are half empty.
If you have money in savings, in the stock market, in a 401k or even cash stuffed under the mattress, this should make the hair on your neck stand on end.
To help understand the monumental problem we face and why our lifestyle and financial security are under attack, I prepared a special presentation.
So if you want to protect yourself and grow your wealth, I encourage you to watch this video now.
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