What Stocks Do Well During Inflation

CF Industries

• Marketplace value:
  $20.6 billion
• Dividend yield:
  1.vi%

Global events seem perilous. If you own
CF Industries
(CF
(opens in new tab), $103.50), which makes fertilizer inputs such equally ammonia and urea, they will seem no less perilous, but you lot will get the kind of satisfaction that comes with knowing y’all are in the right stock at the right time.

The company is benefiting from growing global demand for and shrinking supplies of fertilizer. For perspective, anhydrous ammonia fertilizer was simply over $400 per ton in September 2020. In July 2022, prices peaked at about $one,600 per ton. With natural gas prices all the same loftier, and natural gas a big component of fertilizers, these elevated levels can be expected for the foreseeable futurity.

All of this barm is reflected in CF’south top and bottom lines. In the company’s second-quarter earnings report on Aug. 1, six-month revenues were $half-dozen.3 billion, upwards 137% twelvemonth-over-year. And half-dozen-month earnings, at a tad over $2 billion, were up 415%. Earnings per share were up 434%, with the extra sixteen% of margin driven by buybacks/share count reduction.

One advantage CF has over other global producers is that it purchases natural gas domestically, where prices are nigh xx% of those in Europe. Non all fertilizer producers or the companies supplying fertilizer raw materials can admission U.S. supplies.

Likewise notable in the six-calendar month performance is the improvement in operating margin from approximately 31% in the first half of 2021 to nigh 58% for the kickoff 6 months of 2022. As sales go upwards, margins expand significantly at CF Industries.

At the end of 2021, CF’s share count was about 207 million, down from 233 million in 2017 and 315 million a decade ago, co-ordinate to an analysis by Value Line. All this shrinking of the share count increases earnings per share, and puts upward pressure on the stock toll.

The wise investor is probably request if he or she is late to the political party for i of the all-time inflation stocks, which is up more than 137% over the past year and near best highs. The reply is maybe, simply probably not.

“We keep to believe it volition accept several years to furnish global grains stocks,” says Tony Will, CEO of CF Industries. The grain shortage was provoked by the pandemic, but complicated by the Russian war against Ukraine, with both parties major grain exporters.

Only long-term holders might be able to expect by the current market dynamics and focus on what the arithmetic is telling them. The company has significant operational leverage at higher sales levels, has grown its dividend 26%, on average, annually over the past decade, co-ordinate to Value Line, and is buying its stock back at a brisk charge per unit.

Costco Wholesale

• Market value:
  $245.6 billion
• Dividend yield:
  0.vii%

Costco Wholesale
(Cost
(opens in new tab), $554.53) is a perennial favorite, and for practiced reason: The company’s nimble management team consistently increases earnings in good times and bad. Every bit proof of this, for at to the lowest degree the last decade, Costco has delivered tape earnings each twelvemonth.

Even better, at least for the moment, the visitor’s stock has delivered a tepid performance then far this yr, somewhat alleviating the worry investors have near getting in at the elevation on one of the best stocks for inflation.

There is a moderating betoken nevertheless: Costco trades at a price-to-earnings (P/E) multiple higher than its peers, according to Value Line.

But there’southward a instance to be made that Costco earns its premium valuation. One way it does this is managing the costs of, and pricing for, the appurtenances it sells to customers. Especially now, in an era of historic inflation. In the nine months concluded May eight, sales were up more than 16%, but the gross margin, sales less cost of sales, retreated only only 70 basis points, or 0.70%.

Next, Costco is a dividend grower. The dividend is small, most 0.vii%, just investors might be encouraged that the company has grown it at an boilerplate 13% clip annually for the final decade. This says a lot about acute and prudent management. For really long-term investors, the growth in the dividend tin can pile up and produce spectacular cash-on-greenbacks returns.

Finally, to go another opinion into the mix, Value Line rates Cost A++ for financial force when looking at items such as free cash flow – the money left over after a company has covered the capital expenditures needed to grow its business – debt and return on equity. The only other retailer to earn an A++ rating is Walmart (WMT
(opens in new tab)), merely WMT is a whole different kettle of fish.

Devon Energy

• Marketplace value:
  $44.9 billion
• Dividend yield:
  ix.i%

The case for
Devon Free energy
(DVN
(opens in new tab), $68.51) is that it is operating well in a favorable environment. This can hands exist seen on the meridian and bottom lines, with revenues up almost 138% year-over-twelvemonth in the second quarter, and earnings per share up nearly sevenfold.

In that location are several factors driving an indisputably adept earnings report. First, free energy prices peaked near $120 per-butt in the second quarter – upwardly roughly 60% for the year-to-appointment at that point – confronting which electric current financial comparisons are made. So, only by staying open for business, Devon was poised for a large bump in revenues.

On top of rising prices, DVN has increased production and has the reserves to keep doing so. For the near recently reported quarter, Devon delivered about 300,000 barrels of oil per twenty-four hours (MBbls/d), about 4% in a higher place the midpoint of its guidance.

Finally, Devon is committed to reducing the company’s share count through buybacks. Through the first half of 2022, Devon reduced its share count by half dozen% via $ane.2 billion in buybacks. And the board increased its share repurchase program by 25% in May.

Similar many oil companies, the more oil they produce, the better their margins. Devon delivered a $60 “field level” operating margin in the 2d quarter, versus only over $42 at the end of last year – an increase of 42%. Big is beautiful in the oil patch.

Companies committed to buybacks are frequently committed to dividend expansion, also, and Devon is no exception. Concurrent with the second-quarter report, Devon announced a $1.55 per-share dividend payment, marking a 22% increase over Q1. DVN employs a fixed-plus-variable scheme for its dividend. In the nearly recent quarter, ii cents per share was allocated to the fixed portion, or xiii% of the full increment, which investors might see equally a sign of conviction by management.

Notably, the current dividend yield for Devon is an eye-popping 9.1% – making DVN the among the all-time inflation stocks for those seeking income. However, it likewise indicates that investors are a little more skeptical that the visitor can proceed the oil and the cash flowing. Devon, for its office, remains confident, acquiring Validus Energy in early August for $1.8 billion – giving information technology greater exposure to the all import Hawkeye Ford play.

Pilgrim’southward Pride

• Market value:
  $vii.3 billion
• Dividend yield:
  N/A

Pilgrim’southward Pride
(PPC
(opens in new tab), $30.49) is making a meal out of inflation, benefiting from the continuous rise of meat prices and the ascent of poultry as the elevation protein source for many around the globe. Even amend, costs for raising chickens accept fallen, with the cost/output ratio simply a third of what it was 30 years ago.

These dynamics are reflected on the top and lesser lines at PPC. Revenues in the six months ended June 30 were upward 28%, and earnings arrived at $2.65 per share compared to a loss in the year prior. Since a swing such as this is arithmetically an space improvement, consider, for context, that in all of 2021, earnings per share were just $2.28. The last time
annual
earnings were college than the about recently reported
vi-months
earnings was in 2017.

Conspicuously, PPC is on a curlicue. The earnings performance was driven by a more than than three per centum-point rise in the gross margin, and from boggling growth in the operating margin (from 0.v% during 2021 to 10.3% this yr).

The dramatic rising in the operating margin was due to a meaning driblet in operating expenses, which, in plow, materialized from a variety of legal settlements in 2021. For ESG investors, especially for those with a focus on the “S” part of the equation, the company’s list of price fixing and antitrust litigation could be noteworthy.

Shares have had a modest run then far in 2022. For ambitious investors seeking out the best inflation stocks, this is welcome news as the forcefulness in PPC’southward height and bottom lines appears to have some track left. Retail is in recovery, which drives demand, merely palates are shifting toward craven worldwide, offer some other elevator to top-line sales.

Photronics

• Market value:
  $1.5 billion
• Dividend yield:
  N/A

Photronics
(PLAB
(opens in new tab), $23.62) makes photomasks, which are templates for the blueprint and manufacture of integrated circuits and flat-panel displays. Most 75% of PLAB’s revenues come from IC design, with the balance from flat panel displays.

Concerns well-nigh the semiconductor industry are understandable. Nvidia (NVDA
(opens in new tab)) recently lowered its revenue guidance due to weakness in its gaming sector. But PLAB’s end markets are non tied so closely to discrete markets like gaming. Plus, analysts remain bullish on Photronics, with the consensus earnings-per-share judge for the current quarter more than than double what the company reported in Q3 2021.

Moreover, PLAB is tying its fortunes to much larger market forces. These include the robust demand for integrated circuits and flat-panel displays coming from China for its “Made in People’s republic of china 2025” industrial policy, too equally the U.S. boosting semiconductor production through the Chips and Science Human activity of 2022. Policy in the U.Due south. and China is driven by the incorporation of chips into the Internet of Things, 5G, crypto and diverse consumer products to propel its growth.

PLAB is a small-cap stock, with a market value of only $1.5 billion, simply contempo financial performance has been mighty. For the six months ended May 1, revenues were upwardly 26%, only net income per share was nearly 200% college to 88 cents per share. Most of the bottom line came with comeback on the gross margin past eleven percentage points, all the more remarkable given increased materials, labor and overhead costs.

While growth is busting out all over at PLAB, hitching its carriage to Made In Cathay 2025 offers opportunity. However, this as well creates risks for one of the all-time aggrandizement stocks due to a volatile geopolitical environment.