In the latest sign of rising inflation, consumer prices continued to move upward during the month of September. This release adds further weight to PPI data released last week, which revealed that producer prices had also increased last month. The Fed now seems to have enough evidence to implement a rate hike later this year.
Rising costs of gasoline, higher rents and costlier electricity were some of the primary triggers for last month’s higher consumer prices. Picking stocks gaining from this trend would be a good idea as the economy continues to strengthen.
CPI’s Increase Highest in 5 Months
The consumer price index moved up 0.3% in September, following a 0.2% increase in August. This was the highest advance recorded over the last five months. Additionally, the index gained 1.5% on a year-over-year basis, the largest increase on a yearly basis since Oct 2014. In August, the CPI had gained 1.1% on a yearly basis.
More than half of the increase in CPI was attributable to a 5.8% increase in gasoline prices. However, core CPI, which excludes the costs of food and energy increased by only 0.1%, lower than the 0.3% increase recorded in August. At the same time, rents, which make up a large chunk of core CPI experienced their largest rise in almost a decade.
Oil, REITs, and Power Find Favor
Oil prices have firmed in the period following the landmark OPEC agreement on production controls. On Wednesday, Saudi Arabia’s energy minister said that the continuing decline in oil prices was nearing an end. Meanwhile, favorable data has continued to bolster crude prices. In the latest such report, U.S. domestic crude inventories declined for the week ending Oct 14.
Despite the marginally weaker jobs report released this month, the labor market is on a stronger footing. Steady wage increases have also led to higher electricity demand. Meanwhile, last month was the warmest September in more than a century, according to NASA, providing a more immediate catalyst for incremental demand for power.
Coming to REITs, this sector remains in good health despite an imminent rate hike. A prolonged period of low interest rates and a housing recovery has given these organizations a favorable environment for growth and consolidation. Given that the Fed is still undecided on a rate hike, REITs could continue to enjoy a low interest rate regime for an extended period. With the job market in good health, consumers are in a position to pay the higher rents which REITS command.
A rise in inflation bodes well for the economy and indicates that purchasing power is on the rise. Higher demand for gasoline, electricity and the capacity to pay higher rents bode well for companies gaining from such a trend.
Adding stocks from such sectors to your portfolios makes good sense at this point. However, picking winning stocks may prove to be difficult.
This is where our VGM score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score.
We have narrowed down our search to the following stocks based on a good Zacks Rank and VGM score.
CONE Midstream Partners LP is a master limited partnership focused on natural gas and condensate gathering in the Marcellus Shale in Pennsylvania, Ohio and West Virginia.
CONE Midstream Partners has a Zacks Rank #1 (Strong Buy) and a VGM Score of B. The company has expected earnings growth of 28.9% for the current year. The forward price-to-earnings (P/E) ratio for the current financial year (F1) is 12.92, lower than the industry average of 18.08.
Ultra Petroleum Corp. is an independent, exploration and production company focused on developing its long life natural gas reserves.
Ultra Petroleum has a Zacks Rank #1 and a VGM Score of B. The company has expected earnings growth of more than 100% for the current year. Its earnings estimate for the current year has improved by 13.2% over the last 30 days.
New Senior Investment Group Inc. (SNR - Free Report) is a REIT focused on investing in senior housing properties located in the U.S.
New Senior Investment has a VGM Score of B. The company has expected earnings growth of 4.3% for the current year. Its earnings estimate for the current year has improved by 1.1% over the last 30 days. The stock has a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Preferred Apartment Communities, Inc. (APTS - Free Report) primarily acquires and operates multifamily properties in select targeted markets throughout the U.S.
Preferred Apartment Communities has a Zacks Rank #2 and a VGM Score of B. The company has expected earnings growth of 9.5% for the current year. It has a P/E (F1) of 10.25, which is lower than the industry average of 18.93. .
DTE Energy Company (DTE - Free Report) is a holding company with subsidiaries engaged in regulated and unregulated energy businesses in the U.S.
DTE Energy has a Zacks Rank #2 and a VGM Score of B. The company has expected earnings growth of 8% for the current year. Its earnings estimate for the current year has improved by 3% over the last 30 days.
Entergy Corporation (ETR - Free Report) is primarily engaged in electric power production and retail distribution of power.
Entergy has a Zacks Rank #2 and a VGM Score of B. The company has expected earnings growth of 15.7% for the current year. It has a P/E (F1) of 10.80, which is lower than the industry average of 17.67.
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