3 Stocks That Could Benefit From Inflation
KEY POINTS: STOCKS FOR INFLATION
- As costs go up, Amazon can assist customers and IT experts save money.
- To keep their automobiles on the road, consumers will put their wallets to the test, and ExxonMobil will benefit.
- Roku continues to provide cheap entertainment even as prices rise.
Inflation puts pressure on the S&P 500 (^GSPC). When demand drops amid rising costs, investors display less patience for the higher valuations that drive many businesses.
However, certain businesses can profit from inflation. Investors seeking stocks that will flourish under these circumstances should look into Amazon (NASDAQ:AMZN), ExxonMobil (NYSE:XOM), and Roku (NASDAQ:ROKU). Let’s look at these three inflation-proof companies to see if they’re worth buying right now.
READ: WHICH COMPANY DOES INFLATION HELP AMC OR DOORDASH?
Even in an inflationary scenario, Amazon stock may benefit from several tailwinds. First, it’s been a wide-ranging supplier for years, selling items at any price. That includes options for higher-income customers less impacted by rising costs and low-cost things that can help it compete with a discount-focussed store like Dollar Tree (NASDAQ:DLTR).
Amazon also created the fast-growing cloud computing market. Grand View Research projects a compound annual growth rate (CAGR) of 16% for this industry through 2030. In addition, since this technology lowers operating costs for businesses, rising prices may help accelerate their adoption.
Overall, in 2021, the firm generated $470 billion in revenue, 22% more than a year before, and earnings increased by 57% to $33.4 billion. However, costs rose faster than equity valuations did to offset this impact of growing expenses.
Amazon’s forecast of single-digit revenue growth for the first three months has some worried it will have its most considerable quarterly loss in history. That could be why the stock increased by 5% during the previous year.
Nonetheless, the decline isn’t related to its fundamental operations, and analysts anticipate double-digit sales growth annually. Furthermore, with a price-to-equity ratio of 50, investors may have the chance to acquire Amazon stock at a discount because its valuation is near multi-year lows.
ExxonMobil’s fortunes have improved as a result of rising oil prices. According to the Energy Information Administration, despite the growing popularity of electric vehicles, oil and gas accounted for 69% of US energy consumption in 2020. As a result, investors should not anticipate demand for such fuels to wane with or without inflation.
Additionally, because most Americans rely on energy to power their homes and automobiles, most customers will purchase it regardless of the cost. Moreover, since ExxonMobil is a diversified energy company, it will profit from oil, gas, chemicals production, transportation, and marketing. Such firms assist in keeping the firm resilient in virtually any economic climate.
These segments generated approximately $286 billion in revenue. As a result, it earned more than $23 billion in net income and covered $15 billion in dividend costs. That payment has remained at $3.52 per share for 39 years now, making it one of the best payouts. In addition, its cash yield of 4.3% is more than three times greater than that of the S&P 500’s 1.4%.
Finally, thanks to the ongoing recovery for the worst parts of the COVID-19 pandemic, the stock price has increased 46% last year. At a P/E ratio of 15, it is still less expensive than Chevron (NYSE:CVX), which sells for 20 times earnings. With such a multiple, stockholders may profit from inflation protection at a reasonable cost.
With rising costs, the demand for low-cost entertainment will probably increase, which Roku is well-equipped to meet. It’s a streaming channel aggregator that provides many of its services for free to consumers. Furthermore, as consumers have become increasingly drawn to Roku’s inexpensive Roku TVs and streaming players, they have begun to choose it over rivals such as Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL) or Samsung.
It’s now, at its core, an ad platform. As the television industry shifts towards streaming, Roku offers both an ecosystem and a user base to help advertisers reach their target audiences. Demand for such a platform will increase as Mordor Intelligence predicts an industry CAGR of 14% until 2026.
Roku’s revenue growth far outpaces inflation; thus, this stock will not stop. The firm generated $2.8 billion in sales in 2021, up 56% year over year. This increase made the company profitable, with a net income of $242 million reported in 2021. Even though Roku forecasts revenue growth to slow to 25% in the first quarter, it still exceeds inflationary pressure.
In addition, the market appears to have factored in the slowdown. The entertainment stock’s collapse over the last year has been nearly two-thirds. Moreover, Roku’s price-to-sales ratio has fallen to a multi-year low of 6. That makes Rocky stock look like an excellent buy for massive growth, regardless of how long inflation rises.