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Is Stagflation Round the Corner? 3 Ultra-Safe Picks
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Stagflation is a scenario where price pressures remain elevated amid a cooling economy. In the 1970s, the spike in oil prices propelled inflation to a double-digit rise, while GDP growth was relatively flat, leading to stagflation in the economy.
However, to compare the 1970s with the present economic situation must be an over-the-top expectation. But a small bout of stagflation is likely since an increase in prices of indispensable commodities and services came in hotter than expected. At the same time, the economy expanded at the slowest pace in the first quarter of the two years.
Wholesale prices scaled upward in April, a tell-tale sign that it might take time for inflationary pressure to ebb. The producer price index (PPI) increased 0.5% last month, higher than analysts’ expectations of an increase of 0.3%, per the Bureau of Labor Statistics. Core PPI, which excludes the volatile energy and food costs, also rose 0.5% compared with an estimated gain of 0.2%.
The Federal Reserve’s favored inflation gauge has already shown that it’s an uphill task to tame stubborn price growth. The personal consumption expenditures (PCE) price index increased 2.7% in March from a year ago and came in slightly higher than anticipated. The core PCE price index increased 2.8% from a year ago and was also above our estimates.
It's worth pointing out that the GDP report of the first quarter mentioned that price pressures have been heating up for most of the year, thanks to an uptick in the cost of services, including insurance and transportation. On the other hand, the GDP for the first three months of the year increased at an annualized rate of 1.6%, much less than the 3.4% jump in the final three months of last year, and fell short of Wall Street expectations.
Amid such a gloomy economic setup, where it’s becoming difficult to downplay the idea of stagflation, astute investors should place their bets on ultra-safe stocks. After all, stagflation time and again has led to a double-digit plunge in stocks. Hence, the preferred choices are The Western Union Company (WU - Free Report) , Frontline plc (FRO - Free Report) and Organon & Co. (OGN - Free Report) .
This is because these stocks have a low beta (ranges from 0 to 1), making them immune to market vagaries. They also provide dividends, implying that they have a solid business model that helps them counter market upheavals. They have a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Western Union is a leader in global money transfer. The company has a beta of 0.84 and a Zacks Rank #1. Western Union has a dividend yield of 7.03%. WU’s payout ratio presently sits at 53% of earnings. Check Western Union’s dividend history here.
The Zacks Consensus Estimate for its current-year earnings has increased 4.8% over the past 60 days. The company’s expected earnings growth rate for the next five-year period is 3.8%.
Frontline is a shipping company. The company has a beta of 0.03 and a Zacks Rank #2. Frontline has a dividend yield of 5.57%. FRO’s payout ratio presently sits at 46% of earnings. Check Frontline’s dividend history here.
The Zacks Consensus Estimate for its current-year earnings has increased 10.8% over the past 60 days. The company’s expected earnings growth rate for the current year is 17.5%.
Organon is a healthcare company. The company has a beta of 0.81 and a Zacks Rank #1. Organon has a dividend yield of 5.35%. OGN’s payout ratio presently sits at 27% of earnings. Check Organon’s dividend history here.
The Zacks Consensus Estimate for its current-year earnings has increased by 3% over the past 60 days. The company’s expected earnings growth rate for the current year is 6.8%.
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Is Stagflation Round the Corner? 3 Ultra-Safe Picks
Stagflation is a scenario where price pressures remain elevated amid a cooling economy. In the 1970s, the spike in oil prices propelled inflation to a double-digit rise, while GDP growth was relatively flat, leading to stagflation in the economy.
However, to compare the 1970s with the present economic situation must be an over-the-top expectation. But a small bout of stagflation is likely since an increase in prices of indispensable commodities and services came in hotter than expected. At the same time, the economy expanded at the slowest pace in the first quarter of the two years.
Wholesale prices scaled upward in April, a tell-tale sign that it might take time for inflationary pressure to ebb. The producer price index (PPI) increased 0.5% last month, higher than analysts’ expectations of an increase of 0.3%, per the Bureau of Labor Statistics. Core PPI, which excludes the volatile energy and food costs, also rose 0.5% compared with an estimated gain of 0.2%.
The Federal Reserve’s favored inflation gauge has already shown that it’s an uphill task to tame stubborn price growth. The personal consumption expenditures (PCE) price index increased 2.7% in March from a year ago and came in slightly higher than anticipated. The core PCE price index increased 2.8% from a year ago and was also above our estimates.
It's worth pointing out that the GDP report of the first quarter mentioned that price pressures have been heating up for most of the year, thanks to an uptick in the cost of services, including insurance and transportation. On the other hand, the GDP for the first three months of the year increased at an annualized rate of 1.6%, much less than the 3.4% jump in the final three months of last year, and fell short of Wall Street expectations.
Amid such a gloomy economic setup, where it’s becoming difficult to downplay the idea of stagflation, astute investors should place their bets on ultra-safe stocks. After all, stagflation time and again has led to a double-digit plunge in stocks. Hence, the preferred choices are The Western Union Company (WU - Free Report) , Frontline plc (FRO - Free Report) and Organon & Co. (OGN - Free Report) .
This is because these stocks have a low beta (ranges from 0 to 1), making them immune to market vagaries. They also provide dividends, implying that they have a solid business model that helps them counter market upheavals. They have a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Western Union is a leader in global money transfer. The company has a beta of 0.84 and a Zacks Rank #1. Western Union has a dividend yield of 7.03%. WU’s payout ratio presently sits at 53% of earnings. Check Western Union’s dividend history here.
The Zacks Consensus Estimate for its current-year earnings has increased 4.8% over the past 60 days. The company’s expected earnings growth rate for the next five-year period is 3.8%.
Frontline is a shipping company. The company has a beta of 0.03 and a Zacks Rank #2. Frontline has a dividend yield of 5.57%. FRO’s payout ratio presently sits at 46% of earnings. Check Frontline’s dividend history here.
The Zacks Consensus Estimate for its current-year earnings has increased 10.8% over the past 60 days. The company’s expected earnings growth rate for the current year is 17.5%.
Organon is a healthcare company. The company has a beta of 0.81 and a Zacks Rank #1. Organon has a dividend yield of 5.35%. OGN’s payout ratio presently sits at 27% of earnings. Check Organon’s dividend history here.
The Zacks Consensus Estimate for its current-year earnings has increased by 3% over the past 60 days. The company’s expected earnings growth rate for the current year is 6.8%.