These types of stocks can outperform inflation
WWith inflation rising, which stocks should investors keep an eye on in this economic environment? In this video clip from “Ask Us Anything”. Motley Fool Live, taken on February 28thFool.com contributors Nicholas Rossolillo and Dan Caplinger share their advice on what types of companies to consider.
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Nicholas Rossolillo: Companies that are currently consistently profitable and growing those profits at a rate of 7% or more, as Matt just spoke. If we do move temporarily into the double digits, look for companies that are growing those earnings faster than inflation.
I think a good starter stock for this would be Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B). Warren Buffett’s shareholder letter was released last weekend. It’s always fantastic to read. Super educational, often overlooked because Berkshire has underperformed the market for over a decade.
But that’s starting to change in the last year. I think these companies, the infrastructure companies that Buffett wrote about in his letter, the railroads, the insurance business, the energy business, all of these will do very well in an inflationary environment.
Then one of the top stocks in his portfolio, Apple (NASDAQ:APL) also increase their profitability at a very rapid rate. They’re putting all that money back into returns to shareholders, specifically stock buybacks. That works wonders for us, for the owners of the company. I think this is another one that will be good in an inflationary period.
Thinking of boring stocks that are still growing is a good place to start when looking for stocks that will beat inflation if that becomes a problem over the longer term.
Dan Caplinger: That’s a great perspective, Nick, and it’s also something that aligns with what I’ve heard generally about many people turning to the protective power of well-known brands. Apple is one of the most powerful consumer brands out there, capable of weathering whatever inflationary cost hikes they have.
Other companies that have that branding power, that pricing power. Even if they currently have premium prices for their products, as costs increase, they can maintain their margins by passing on their higher costs. This is definitely something that protects you from inflation.
Dan Caplinger owns Apple and Berkshire Hathaway (B shares). Nicholas Rossolillo owns Apple and Berkshire Hathaway (B shares). The Motley Fool owns shares of and recommends Apple and Berkshire Hathaway (B shares). The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), long March 2023 $120 calls on Apple, short January 2023 $200 puts on Berkshire Hathaway (B shares), short January 2023 $265 calls on Berkshire Hathaway (B shares) and short March 2023 $130 calls on Apple. The Motley Fool has one confidentiality policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.