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4 Stocks to Beat the Fastest Rise in Inflation in 5 Years

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After several years of low inflation and worries about the prospect of deflation, portfolios need to be prepared for a rise in prices. Since the summer of 2016, headline inflation has climbed steadily, while last month consumer prices rose at the fastest pace in nearly five years on an annual basis. Producer prices also increased more than expected, pointing to a steady rise in inflationary pressure. The Fed even raised short-term interest rates this month as the burden of inflation looms.

Higher cost of goods such as gasoline pushed up U.S. inflation, offsetting a rise in household income and in due course squeezing consumers. In such an inflationary environment, investors should buy real estate and gold that increase in value at a rate in excess of the rate of inflation.

Inflation Hits the Fastest Pace in Almost 5 Years

U.S. consumer prices rose at the fastest pace in February in nearly five years, compared with the same period in 2016, according to the Labor Department. In the 12-month period through February, the Consumer Price Index (CPI) was up 2.7%, its biggest year-on-year gain since Mar 2012. The core CPI measure that excludes volatile food and fuel costs rose 2.2% from February last year.

Consumers aren’t paying higher prices for most goods and services but an uptick in gas prices raised overall inflation. A sharp acceleration in what consumers pay as rent, which incidentally increased at the fastest clip last year since 2007, has also put more upward pressure on inflation. Another big expense, the cost of Medicare, too, was behind this rise in inflation. In 2016, the cost of gas increase 9.1%, while rents posted the biggest advance since mid-2007, increasing 3.7%. Medical expenses rose 4.1%, its biggest increase in nine years.

U.S. wholesale prices, in the meantime, continued to rise in February as the cost of some services like financial advice, legal help and travel increased. The Producer Price Index (PPI) over the last 12 months in February climbed 2.2%, the largest advance since Mar 2012.

Inflation Heating Up as Evident from PCE

Another inflation index known as the personal consumption expenditures price index (PCE) jumped over the last 12 months to 1.9% in January. This marked the highest year-over-year level since Oct 2012. The PCE is a preferred tool for the Fed to measure inflation.

As the rate of inflation is now tantalizingly close to the Fed’s 2% long-term target, the central bank raised federal funds rate this month. The Fed raised its federal funds rate to a range of 0.75% to 1% this month. The policy rate rose by 25 basis points to 1% for the first time in a decade. The Fed also penciled two rate hikes for this year and three in 2018 (read more: 5 Biggest Winners from the Fed Rate Hike).

How to Profit from Inflation?

Real estate is an obvious choice because an uptick in prices increases the resale value of the property over time. Further, as the value of the property rises with inflation, the amount tenants pay in rent can be increased over time. This is how income generated from a real estate property can keep pace with the general rise in prices across the economy. A real estate property is purchased with the intention of earning a return on investment either through rental income or through future resale of the property.

When inflation is high, the value of paper currency tanks in terms of goods and services it can buy. But rising inflation is good for gold prices, as gold doesn’t lose its value like currency in times of higher inflation. Gold has a direct relationship with inflation. As inflation increases, demand for gold moves north. Silver and other metals also tend to gain value during inflationary times. However, gold is generally the headline-grabbing investment.

4 Solid Choices

As inflation heats up, investing in the aforementioned areas will be prudent. Real estate can be purchased indirectly through investment in real estate investment trust, while gold can be purchased by investing in stocks of a company involved in the gold mining business. Here, we have selected four stocks that boast a Zacks Rank #1 (Strong Buy) or #2 (Buy) and belong to the real estate and gold space.

Preferred Apartment Communities, Inc. (APTS - Free Report) is a real estate investment trust externally managed by Preferred Apartment Advisors, LLC. The firm invests in real estate markets of the United States.Preferred Apartment Communities has a Zacks Rank #1. The Zacks Consensus Estimate for its current year earnings increased 4.3% over the last 60 days. The company’s projected growth rate for the current year is 12.2%, more than the REIT and Equity Trust - Residential industry’s increase of 5.3%.

Silver Bay Realty Trust Corp. is an internally managed real estate investment trust. The company is focused on the acquisition, renovation, leasing and management of single-family properties in certain markets in the United States. Silver Bay Realty Trust has a Zacks Rank #1. The Zacks Consensus Estimate for its current year earnings advanced 3.4% over the last 60 days. The company’s projected growth rate for the current year is 11%, more than the REIT and Equity Trust - Residential industry’s increase of 5.3%.

Equity Lifestyle Properties, Inc. (ELS - Free Report) is a real estate investment trust. The company is an owner and operator of lifestyle-oriented properties (properties) consisting primarily of manufactured home communities and recreational vehicle resorts and campgrounds. The Zacks Consensus Estimate for its current year earnings improved 0.3% over the last 60 days. The company’s projected growth rate for the current year is 7.6%, more than the REIT and Equity Trust - Residential industry’s increase of 5.3%. Equity Lifestyle Properties has a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Alamos Gold Inc (AGI - Free Report) is a Canadian-based intermediate gold producer with diversified production from three operating mines in North America. The company has a significant portfolio of development stage projects in the United States. Alamos Gold has a Zacks Rank #2. The Zacks Consensus Estimate for its current year earnings surged 16.7% over the last 60 days. The company’s projected growth rate for the current year is 390%, more than the Mining - Gold industry’s increase of 10.8%.

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