With inflation nearing its highest levels in 40 years, so are many consumers feeling pain High price levels. But inflation is not the worst thing that can happen.
In an interview with Bloomberg, Allianz’s chief economic adviser, Mohamed El-Erian, warned of stagflation – an economic situation characterized by high inflation, but without the strong economic growth and employment that usually accompanies it.
“What is inevitable is stagflation. We have seen growth come down, and we see inflation still high,” he says. “And the Fed is finally catching up with developments on the ground, but it still has a long way to go.”
who – which It does not bode well for stock market investors.
We have gone through the sequence through pricing inflation risk and interest rate risk to pricing tighter liquidity. What we haven’t priced in yet, is a significant slowdown in growth.”
But even in stagflation, few sectors can still make money.
Let’s take a quick look at three of them.
Utilities usually have the ability to withstand economic shocks. whether boom or collapsePeople will still need to heat their homes in winter and turn on lights at night.
Businesses also have high barriers to entry.
Building the infrastructure needed to distribute gas, water, or electricity is very costly. In addition, the industry is highly regulated by the government.
As a result, utility companies typically operate as monopolies or oligopolies in their respective operating areas. Because of the recurring nature of business, the segment is known for providing reliable dividends to shareholders.
The best part? Utility companies like Consolidated Edison (ED), American Water Works (AWK) and NextEra Energy (NEE) are increasing their profits year after year.
Next, we have the food industry, which includes grocers, food distribution companies, and food producers.
No matter where we are in the economic cycle, people still need to eat.
Case in point: While the COVID-19 pandemic has posed serious challenges to many brick-and-mortar businesses, supermarket giant Kroger (KR) has continued to thrive.
Kroger’s shares are up 6% in 2022, in stark contrast to the broad double-digit market slump.
Then there’s PepsiCo (PEP), which includes 23 brands that each generate more than $1 billion in estimated annual retail sales. Sure, inflation can drive up costs, but management plans to take “good, strong price increases” to counter those pressures.
In the food industry, the high costs are usually borne by consumers.
Real estate is a well-known way to hedge against inflation. As the prices of raw materials and labor rise, it becomes more expensive to build new properties. This raises the price of existing properties.
But not all characteristics are the same.
To prepare for stagflation, look at apartments.
No matter how slow economic growth is, people need a place to live. With real estate prices rising to unsustainable levels in many parts of the country, rent has become the only option for many people.
You can always buy an apartment building yourself, find tenants and receive monthly rent checks. Of course, real estate investment trusts focused on apartments can do this for you.
For example, Camden Property Trust (CPT) owns, manages, develops and acquires multi-family residential communities. It has investments in 170 properties containing 58,055 housing units across the United States and offers an annualized return on earnings of 2.7%.
Essex Property Trust (ESS) invests primarily in apartments located on the West Coast. The yield on the REIT is currently 3.1%, buoyed by its stake in 253 residential communities — in California and Seattle — totaling about 62,000 units.
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