Inflation is on the rise again according to the Labor department’s monthly report. The consumer price index, the most widely used indicator of inflation, added 0.4 percent in April and 3.2 percent from the year-earlier period, slightly beyond analyst expectations of a 3.1 percent annual increase. Food and gas prices were primarily responsible for the quickest 12-month pace since late 2008 Friday’s report show. So with gas stations and grocery stores draining consumer pockets and accounting for a significant portion of spending, what stocks are safest and could even potentially benefit from the index’s speedy rise?
1) Mastercard Inc. (NYSE: MA): While people may be less prone to swipe their cards in high-end boutiques or might feel more inclined to buy generic instead of name brand at the grocery store in the coming months, Mastercard probably won’t sweat it too much. The company receives a small percentage of each transaction so when inflation is up, so is the cash flow they’re receiving. Since the company does not produce any product, they don’t incur any additional costs as a result of the rise in prices. Instead, they benefit from the fact that people are spending more money on necessities. Just last month, retail sales rose 0.5 percent after a 0.9 percent increase in March. If the spending trend is continues as expected, share prices of Mastercard may follow the same trajectory.
2) Walmart (NYSE: WMT): In the past several years, Walmart has switched up their game plan, narrowing their product assortment and unleashing a number of discount plans, like the well-publicized rollbacks, that did more hope than good. Taking note of the negative trajectory though, Walmart recognized the error of its ways and is returning to their original business plan. Walmart believes that now more than ever, it’s important to become a one stop shop, a goal they’re looking to achieve while resisting the urge increase their prices to make up for higher wholesale and production costs. Instead Walmart has expressed plans to work with suppliers in order to cut costs and keep its prices at a level that is more attractive to consumers than its competitors without suffering on the back end. Walmart is already well known for their competitive pricing, but they seem to be upping the ante now, which could be beneficial for them as inflation rises.
3) Deere & Co. (NASDAQ DE): The inflation that is not coming from gasoline right now is coming from food and farmers will reap the benefits of that. So will farm equipment manufacturers. With a respected bran name and a devote client list, Deer & Co. may be at the top of the list to profit from this. Farmer’s pockets are growing thicker by the day and a strong harvest is expected. The influx of cash and rising demand can be understood as a catalyst for farmers to upgrade the equipment they’re using. More expensive machinery may help them work faster or plant more, both of which would be good for business. Deere has a market cap of $41.5B with eps expected to rise + 29% and sales growth of +24% for this quarter according to Seeking Alpha.
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