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Analyst Blog

The U.S. dollar has been surging against major currencies throughout the globe since Donald Trump emerged victorious in the Presidential election. Rising expectations of a pickup in inflation rate on the back of Trump’s pledge to increase infrastructure spending and cut taxes emerged as the main reasons behind the surge in the greenback. This also led to a massive increase in yields on the U.S Treasury bonds.

In this backdrop, picking stocks from sectors that are likely to benefit from an increase in inflation rate may prove to be a wise decision.

Trump Presidency Expected to Boost Inflation

Most of the analysts expect that Trump’s presidency may help the U.S. economy to overcome year long low-inflation environment and expand at an impressive pace in the days ahead. During his election campaign, Trump repeatedly emphasized on building infrastructure throughout the U.S.

Even in his victory speech, Trump said that he will give precedence in rebuilding infrastructure, “which will become, by the way, second to none.” He had also promised earlier an increase in public spending on infrastructure by a trillion of dollars over the next 10 years. In fact, he is expected to offer $137 billion in tax credits to private construction companies undertaking infrastructure projects.

Trump vowed to cut U.S. corporate tax rates to 15% from 35%, which will likely increase the attractiveness of the U.S. as a business destination. The Republican candidate also vowed to cut taxes for all Americans, reducing the top tax bracket from 39.6% to 33%. This move could bolster consumer spending, fueling growth in the economy. Investors are betting that these factors are likely to play a vital role in increasing inflation in the days ahead.

Fisher Signals Rise in Inflation

Separately, recent comments from the Fed Vice Chairman Stanley Fischer also indicated that the central bank has started to believe that inflation rate in the U.S. is on the verge of a significant pickup. In a conference at the Central Bank of Chile, Fisher said: “In my view, the Fed appears reasonably close to achieving both the inflation and employment components of its mandate.” He also signaled that this may lead to further policy tightening in the near future. He said: “Accordingly, the case for removing accommodation gradually is quite strong, keeping in mind that the future is uncertain and that monetary policy is not on a preset course.”

Earlier on Monday, rising inflation expectations led the greenback to strengthen significantly against major currencies to touch a nine-month high level. The dollar index that measures the value of the U.S. dollar against six major currencies shot up 0.4% to 99.471.

Moreover, since Trump’s win the U.S. Treasury bonds have been witnessing massive sell-offs, which in turn is leading yields on the same to rise to record levels. The 30-year US Treasuries yield jumped 7.83 basis points to cross the 3% mark for the first time this year on Monday.

6 Stocks to Buy Now

Here we have tried to highlight fundamentally strong stocks that belong to sectors that are expected to gain the most in a rising inflation rate scenario. In addition to favorable financial metrics, we have considered only stocks with either a Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy) that also come with good VGM Scores.

Our research shows that stocks with a Style Score of A or B when combined with a Zacks Rank #1 or 2 offer the best upside potential. Moreover, these stocks also come with impressive fundamentals and thus are poised to gain in the days ahead.

Retail

The retail sector is considered to be one of the major beneficiaries of rising inflation. While healthy growth in inflation rate helps companies from the space to register higher margins, tax cuts as proposed by Trump may boost consumer spending, which in turn may boost these stocks further.

Best Buy Co., Inc. (BBY - Free Report) operates as a retailer of technology products, services, and solutions. This Zacks Rank #1 company has a VGM Score of ‘A.’ Best Buy has an expected earnings growth rate of 9.6% compared with the industry average of 0.6%. Its earnings estimate for the current year has improved 0.3% over the last 30 days.

Stamps.com Inc. (STMP - Free Report) provides Internet-based postage solutions in the U.S. This Zacks Rank #1 company has a VGM Score of ‘B.’ Stamps has forward price-to-earnings (P/E) ratio for the current financial year (F1) of 16.06, compared with the industry average of 19.58. It has an expected earnings growth rate of 93.1% for the current year compared with the industry average of 9.1%. Its earnings estimate for the current year has surged 19.8% over the last 30 days.

Construction

This is another sector that is expected to reap the benefits of rising inflation especially in the event of a significant increase in infrastructure spending. Construction companies are expected to play a vital role in rebuilding infrastructure throughout the U.S.

Willdan Group, Inc. (WLDN - Free Report) provides professional technical and consulting services to utilities, private industry, and public agencies at various levels of government primarily in the U.S. It has a VGM Score of ‘A.’ Willdan has an expected earnings growth rate of 82.7%. Its earnings estimate for the current year has increased 11.8% over the last 30 days. The company sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

MasTec, Inc. (MTZ - Free Report) provides engineering, building, installation, maintenance, and upgrade services. This Zacks Rank #2 company has a VGM Score of ‘A.’ MasTec has an expected earnings growth rate of more than 100%. Its earnings estimate for the current year has improved 7.6% over the last 30 days.

Real Estate

This sector is considered as one of the foremost gainers in a healthy inflation environment. While a rise in inflation is expected to boost resale values of real estate property, rental income is also expected to surge if inflation rises. These factors are expected to drive demand in the domain.

Preferred Apartment Communities, Inc. (APTS - Free Report) acquires and operates multifamily properties primarily in the U.S. This Zacks Rank #2 REIT has a VGM Score of ‘A.’ Preferred Apartment Communitoes has a P/E ratio of 10.04, compared with the industry average of 18.85. It has an expected earnings growth rate of 12.1% for the current year compared with the industry average of 3.7%. Its earnings estimate for the current year has improved 2.4% over the last 30 days.

Gaming and Leisure Properties, Inc (GLPI - Free Report) is involved in owning, acquiring, developing, expanding, managing, and leasing gaming and related facilities. This Zacks Rank #2 REIT has a VGM Score of ‘B.’ Gaming and Leisure Properties has a P/E ratio of 10.41, compared with the industry average of 13.67. It has an expected earnings growth rate of 5.4% for the current year compared with the industry average of 4.2%. Its earnings estimate for the current year has improved 0.6% over the last 30 days.

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