Firms that are not afraid of inflation

In 2019, the S&P500 index was up 29%. In 2020, the index showed a 16% increase, and in 2021, it was up 27%. Should we expect the upward trend to continue in 2022? Unfortunately, the forecasts for the U.S. stock market for 2022 are radically different from those for 2021.

First, the economic situation in the world has changed. In 2020 and 2021, the markets lived in fear of the spread of the coronavirus. In 2022, the epidemiological threat is gone, but the stock market will have to face and overcome new obstacles, namely inflation, followed by recession.

Thanks to the actions of the world’s central banks, inflation is at multi-year highs. For example, inflation in the U.S. is now at the levels it was back in 1980. And while in 2021, stocks were rising thanks to low-interest rates and government infusions, things will be different in 2022.

What challenges await Wall Street this year? To begin with, for the first time since 2018, the Fed has started to raise rates to curb inflation. Another challenge to hamper stock market growth is Russia’s war with Ukraine. In response to Moscow’s actions, the West imposed sanctions, severely damaging the Russian economy by depriving it of trade opportunities with many countries. As a result of these actions, the oil market has soared to multi-year highs, which should lead to a decline in consumer spending worldwide. Moreover, Russia is a major supplier of several agricultural products and fertilizers, the shortage of which will also affect world prices.

Goldman Sachs has already lowered its forecasts for economic growth in the U.S. in 2022. According to the bank’s experts, there will be no GDP growth in the first three months of the year. According to analysts, the chances of a recession in 2023 in the U.S. have risen to 34%.

The world seems to be facing another crisis. We have selected several actions that we think should help us survive it.

Walmart

The U.S. economy is based on consumption, and retail spending accounts for the bulk of consumer spending. During a recession, the Central Bank will focus on increasing just retail spending, which will make stocks of companies that operate in this area less susceptible to an economic shock from rising rates.

Walmart (WMT) is on that list. Over the past two years, the retailer’s sales in the U.S. have grown by 15%. All Walmart figures are growing thanks to multi-channel sales, a developed logistics network, and same-day delivery service.

Another factor that will help the retailer maintain its growth rate in difficult times is its presence in the Indian market, which is considered one of the fastest-growing in the world. This campaign’s international sales should increase in the coming years, which will improve the overall situation for the issuer.

In 2022, Walmart predicts a free cash flow of $11.1 billion, which will make the company quite flexible and help it adapt to the new conditions. Having a good free cash flow, the issuer will continue to repurchase its shares and pay dividends, which, by the way, amount to 1.7% per annum. Besides, the securities of this company are now attractive for investors due to the low beta coefficient.

Newmont Corporation

Next on our list is the mining company Newmont Corporation (NEM). The issuer is engaged in the development of ore deposits in different parts of the world. In 2020, it accounted for 6% of global gold production. The mines owned by the company have enough precious metal until 2040.

Thanks to rising inflation and increased geopolitical tensions in recent months, the price of the precious metal has reached multi-year highs, which favorably affected the growth of gold mining stocks, including the securities of Newmont Corporation, which over the past six months rose by 19.02%.

In the fiscal year 2021, this mining company had revenues of more than $12 billion and adjusted EBITDA of $5.9 billion. Free cash flow was $26 billion. The company expects EBITDA and free cash flow to continue to grow, resulting in higher dividends. NEM management also plans to reduce overall expenses in the coming years. Even if the price of the precious metal stops rising and returns to a sideways trend, the issuer expects growth to continue.

With a cash reserve of $5 billion and a total liquidity reserve of $8 billion, a beta ratio of 0.29, and a dividend yield of 3.3%, this paper looks more than attractive to invest in.

Firms that are not afraid of inflation

Chevron Corporation

The coming recession should hurt oil prices, but with geopolitical tensions and high inflation, the oil and gas sector remains attractive for investment as portfolio protection. We suggest looking at Chevron Corporation (CVX).

What are the good things about this company’s stock? First, it is an oil producer that has a quality balance sheet with a net debt ratio of 15.6%. Second, the company has assets with low breakeven. In 2020, when oil prices fell, the company continued to generate positive cash flow.

In 2021, the issuer generated approximately $162.5 billion in revenue, a 72% increase over the same period in 2020. Net income came in at $15.7 billion, which helped it generate a free cash flow of $21.1 billion, of which $10.2 billion went to dividend payments. The company’s dividend yield was 4.1%.

Thanks to rising oil prices, Chevron Corporation has gained more than 50% over the past year. At the same time, the P/E multiple is 17.

In 2022, the company expects free cash flow growth, which is projected at $29.2 billion. Also, investors can count on the continuation of the share buyback program, for which the issuer is ready to spend $3 billion.

Starbucks

Starbucks ‘ (SBUX) stock could also be a safe haven during a global economic downturn. The company’s presence in every corner of the world, its sound pricing policy, and stable revenue are the strengths of this coffee chain.

And don’t let it confuse you that this paper is now going down. The drop in prices is due to rising costs and the difficult operating conditions in China, where the government still maintains most quarantine measures.

The current decline is an excellent opportunity to buy shares of a company with good long-term growth prospects.

The company’s strategy of keeping prices low is helping it conquer new markets, and it will pay off in the long run. SBUX’s sales in North America remain strong, and it’s only a matter of time before they go up in the PRC as well.

Even though last quarter’s financial performance never exceeded expectations, profits remain stable.

Another reason to buy Starbucks stock is the company’s management plans to raise its dividend payout. Currently, the issuer pays out $0.49 per share each quarter, which equates to an annual yield of about 2.47%. Over the past five years, yield growth has been 18%.

Pfizer

Despite very mediocre growth before COVID-19, Pfizer (PFE) has been able to take the lead in the pandemic. According to its forecasts, revenue from coronavirus vaccines and pills will reach $54 billion this year. Total business revenue from sales will reach $98-$102 billion, which is 23% more than in 2021 and almost twice as much as in 2020.

Some uncertainty for business is created by the possibility of a decrease in revenues from the coronavirus situation amid a decline in relevance. But for the time being, it is not leaving the scene. According to CEO Albert Burl, a fourth dose of the vaccine is needed to provide full protection against COVID-19 strains. The company is also working to develop a vaccine with greater efficacy and a longer duration of action. Now a third dose can be administered five months after the previous dose.

Despite the inevitable slowdown in coronavirus revenue, Pfizer’s future growth will benefit from the profits and cash flow generated by the pandemic. Free cash flow in 2021 was nearly $30 billion, a figure that doubled from the same figure in 2020.

Pfizer’s position can be called quite strong, given the growth opportunities even after the end of the global pandemic. At the moment, the forward price to earnings ratio is very low – it is slightly above 7. Johnson & Johnson, for example, has a coefficient of 16, and Eli Lilly has 31.

Meta Platforms

The Meta Platforms (FB) business, owned by Facebook, looks attractive in the long term. The social networking giant seems to have passed its peak user growth point, as the company reported that the number of daily users dropped for the first time in its history. The number was 1.929 billion in the period that ended on December 31, down from 1.93 billion last quarter.

The company failed to meet analyst forecasts of 1.95 billion daily users and revenue projections of $30 billion, with Meta expecting between $27 billion and $29 billion.

Meta’s problems are multiplied by changes in Apple’s privacy terms, which limit advertisers’ access to tracking users’ smartphones. These changes have hurt the company’s business.

But don’t discount Meta because it is actively investing in its metaverse. Kathy Wood of Ark Invest believes that in the future, the new reality could bring trillions of dollars and make Meta’s business more versatile. Thus, investments can become promising, despite the decline of Meta shares by 40% or more this year. The reason for the fall was largely due to disappointing quarterly results and forecasts. But the risks associated with Meta are already priced in, which speaks in favor of buying shares right now.

The P/E is only 15, which can be called the smallest premium on the company’s stock over the past year. Apple has a P/E of 25, and Alphabet has a P/E of 22. Thus, Meta shares can be considered for investment, given good growth prospects shortly.

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About author

Arseny Kudrin

Publicist, trader

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