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Buy these 2 Stocks to Hedge Against a Second Wave of Inflation
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The CPI report on Wednesday showed that the rate of inflation continued to slow, albeit at a meager pace. Additionally, the Core CPI increased 0.4% MoM and is still up 5.6% YoY. These are only incremental improvements in the battle against inflation, and I fear there may be some risk next month inflation comes in higher than expected.
During most of March, the price of oil remained below $70, and helped lower inflation for the most recent data release. But since then, the price of oil has rallied nearly 20%, boosting gasoline prices and other personal and business expenses.
Furthermore, there was a breakout in the price of agricultural commodities this week. Invesco DB Agricultural Fund (DBA - Free Report) just made nine-month highs. DBA has been a useful leading indicator throughout the last year on inflation.
All these factors together make me think next month’s CPI report could come in stronger than investors expect and shift the narrative to a second wave of inflation. Because of that I am sharing two highly ranked defensive stocks that should fare well in the case of continued inflation.
Image Source: TradingView
PPG Industries
PPG Industries (PPG - Free Report) is a global supplier of paints, coatings, chemicals, specialty materials, glass, and fiber glass. PPG Industries currently has two reportable segments: Performance Coatings and Industrial Coatings. PPG recorded revenues of around $17.7 billion in 2022, with Performance Coatings and Industrial Coatings accounting for 60.4% and 39.3%, respectively.
PPG is a Zacks Rank #1 (Strong Buy) stock, indicating upward trending earnings revisions. Analysts have unanimously upgraded their estimates for PPG, with current quarter earnings being revised higher by 20% over the last two months.
PPG industries is expecting steady sales growth over the next two years as well. Current quarter expectations project 4.2% growth YoY to $4.5 billion, and FY23 expects 4.4% growth to $18.4 billion.
Image Source: Zacks Investment Research
Over the last two years PPG stock has underperformed the broad market. However, its 20-year performance speaks for itself. Over that period the stock has rallied 800%, or 11.5% annualized return. Additionally, the stock boasts a 1.8% dividend yield, which it has raised for 51 years consecutively, earning it a spot on the list of dividend aristocrats.
Image Source: Zacks Investment Research
PPG Industries is trading at a one-year forward earnings multiple of 20x, which is below the industry average of 22x, and just above its 10-year median of 19x. The chemical industry is an absolute necessity to the world economy, and PPG is a strong defensive stock that should outperform the market in tough times.
Image Source: Zacks Investment Research
NextEra Energy
NextEra Energy (NEE - Free Report) is a public utility holding company engaged in the generation, transmission, distribution, and sale of electric energy. The company has both regulated and non-regulated energy-related products and services, with operations in 27 states in the U.S. and four provinces in Canada. NextEra Energy was founded in 1925. The company serves nearly 10 million people through approximately 5 million customer accounts.
NextEra Energy stock has had impressive 10-year returns, nearly doubling the broad market. The last two years have been slower though, and it has been about flat over that time. This has allowed the stock to base out, and because earnings have still increased over this period, the valuation has become more appealing.
Image Source: Zacks Investment Research
NextEra Industries is a Zacks Rank #2 (Buy) stock, indicating upward trending earnings revisions. Earnings estimates are mostly steady with just some slight revisions higher, but because of how critical utility companies are to their customers, NEE is an extremely defensive stock.
Additionally, sales projections are extremely strong. Current quarter sales are expected to climb 105% YoY to $5.9 billion, and FY23 sales are expected to grow 27% to $26.6 billion.
Image Source: Zacks Investment Research
NEE is trading at a one-year forward earnings multiple of 25x, which is above the broad market 19x, and below its three-year median of 30x. NextEra offers a dividend yield of 2.4%, which it has raised for 28 consecutive years.
Image Source: Zacks Investment Research
Bottom Line
Today it seems the market narrative has become quite bullish, and that many of the risks from inflation and rate rises are in the past. But there is still some risk in this market. Defensive stock like the ones shared here should provide steady returns and regular dividends during challenging periods. Additionally, even if the risks don’t materialize, they make for great additions to any investment portfolio.
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Buy these 2 Stocks to Hedge Against a Second Wave of Inflation
The CPI report on Wednesday showed that the rate of inflation continued to slow, albeit at a meager pace. Additionally, the Core CPI increased 0.4% MoM and is still up 5.6% YoY. These are only incremental improvements in the battle against inflation, and I fear there may be some risk next month inflation comes in higher than expected.
During most of March, the price of oil remained below $70, and helped lower inflation for the most recent data release. But since then, the price of oil has rallied nearly 20%, boosting gasoline prices and other personal and business expenses.
Furthermore, there was a breakout in the price of agricultural commodities this week. Invesco DB Agricultural Fund (DBA - Free Report) just made nine-month highs. DBA has been a useful leading indicator throughout the last year on inflation.
All these factors together make me think next month’s CPI report could come in stronger than investors expect and shift the narrative to a second wave of inflation. Because of that I am sharing two highly ranked defensive stocks that should fare well in the case of continued inflation.
Image Source: TradingView
PPG Industries
PPG Industries (PPG - Free Report) is a global supplier of paints, coatings, chemicals, specialty materials, glass, and fiber glass. PPG Industries currently has two reportable segments: Performance Coatings and Industrial Coatings. PPG recorded revenues of around $17.7 billion in 2022, with Performance Coatings and Industrial Coatings accounting for 60.4% and 39.3%, respectively.
PPG is a Zacks Rank #1 (Strong Buy) stock, indicating upward trending earnings revisions. Analysts have unanimously upgraded their estimates for PPG, with current quarter earnings being revised higher by 20% over the last two months.
PPG industries is expecting steady sales growth over the next two years as well. Current quarter expectations project 4.2% growth YoY to $4.5 billion, and FY23 expects 4.4% growth to $18.4 billion.
Image Source: Zacks Investment Research
Over the last two years PPG stock has underperformed the broad market. However, its 20-year performance speaks for itself. Over that period the stock has rallied 800%, or 11.5% annualized return. Additionally, the stock boasts a 1.8% dividend yield, which it has raised for 51 years consecutively, earning it a spot on the list of dividend aristocrats.
Image Source: Zacks Investment Research
PPG Industries is trading at a one-year forward earnings multiple of 20x, which is below the industry average of 22x, and just above its 10-year median of 19x. The chemical industry is an absolute necessity to the world economy, and PPG is a strong defensive stock that should outperform the market in tough times.
Image Source: Zacks Investment Research
NextEra Energy
NextEra Energy (NEE - Free Report) is a public utility holding company engaged in the generation, transmission, distribution, and sale of electric energy. The company has both regulated and non-regulated energy-related products and services, with operations in 27 states in the U.S. and four provinces in Canada. NextEra Energy was founded in 1925. The company serves nearly 10 million people through approximately 5 million customer accounts.
NextEra Energy stock has had impressive 10-year returns, nearly doubling the broad market. The last two years have been slower though, and it has been about flat over that time. This has allowed the stock to base out, and because earnings have still increased over this period, the valuation has become more appealing.
Image Source: Zacks Investment Research
NextEra Industries is a Zacks Rank #2 (Buy) stock, indicating upward trending earnings revisions. Earnings estimates are mostly steady with just some slight revisions higher, but because of how critical utility companies are to their customers, NEE is an extremely defensive stock.
Additionally, sales projections are extremely strong. Current quarter sales are expected to climb 105% YoY to $5.9 billion, and FY23 sales are expected to grow 27% to $26.6 billion.
Image Source: Zacks Investment Research
NEE is trading at a one-year forward earnings multiple of 25x, which is above the broad market 19x, and below its three-year median of 30x. NextEra offers a dividend yield of 2.4%, which it has raised for 28 consecutive years.
Image Source: Zacks Investment Research
Bottom Line
Today it seems the market narrative has become quite bullish, and that many of the risks from inflation and rate rises are in the past. But there is still some risk in this market. Defensive stock like the ones shared here should provide steady returns and regular dividends during challenging periods. Additionally, even if the risks don’t materialize, they make for great additions to any investment portfolio.