In March, the Consumer Price Index, which measures the average prices consumers pay for many everyday items, rose to 3.3% from 2.4% in February. This is largely due to rising gas prices, which have affected other corners of the economy. Rising prices can also affect stock markets (in fact, they already have), so it is important for investors to buy stocks that can perform well even in an inflationary environment. Here are three great examples: Walmart(NASDAQ:WMT), Visa(NYSE: V)and netflix(NASDAQ: NFLX).
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People are always looking for a good deal, but especially when prices go up. That’s where Walmart comes into play. The company is one of the largest retailers in the world and one of its main attractions is that it tends to offer lower prices than most of its competitors. Will Walmart be forced to raise prices on some items due to inflation? Probably, but this is something other major merchants will have to deal with as well. On the net, Walmart should keep its daily low price guarantee intact relative to its peers, which could help it maintain steady store traffic and decent revenue and profit growth. Walmart has been doing exactly that for a long time, and there are many more years of excellent returns ahead.
One of the reasons the company has excellent prospects is its push into digital commerce. Walmart is one of the largest e-commerce players in the US. As retail transactions increasingly move online, the company should see an increase in revenue and a decrease in operating costs. It will also boost Walmart’s high-margin advertising business. Here’s one more aspect of the business that makes it attractive: Walmart is an excellent dividend stock. The company has increased its payouts for 53 consecutive years, making it the Dividend King, or a corporation with 50 or more consecutive annual dividend increases. Risk-averse income investors looking for a safe haven in these volatile times (and stocks that can perform well over the long term) should seriously consider Walmart.
In fact, Visa’s business may benefit from inflation. The company makes money by charging fees as a percentage of each credit or debit card transaction it helps process through its network. Higher prices mean higher fees per transaction and higher overall revenue, all other things being equal. It is true that consumers will change their behavior and lower transaction volumes will offset the gains from inflation to some extent. But Visa has typically performed well during inflationary periods.
That makes it a stock that deserves serious consideration today, especially given the huge market it addresses in its niche and its wide moat. Visa has estimated that there are still trillions of dollars in transaction volume that can be added to its ecosystem.
Additionally, the growth of the e-commerce market, which requires digital payment methods, will also be a major tailwind. Visa, meanwhile, has very few direct competitors thanks to its deep network effect that traps merchants and customers in its ecosystem. Finally, Visa is also an attractive dividend stock. The financial services specialist has increased its payments by an impressive 378.6% over the last 10 years.
Netflix recently announced another price increase. While many will complain, Netflix’s paid subscribers and revenue have been moving in the right direction in recent years, including through price increases. Netflix has established itself as a leading entertainment and media company and benefits from immense pricing power. That’s why inflation shouldn’t be a big problem for the company. Few people will cancel their Netflix subscriptions due to rising prices. But can the stock still beat the market, given the significant competition it now faces in streaming? Yes, it can. Here are three reasons.
First, although the competitive landscape has changed, Netflix remains the leader in streaming. The company’s deep ecosystem is an important competitive advantage, allowing it to study consumer preferences and design its content strategy accordingly. Secondly, there is a lot of room for growth in the market. In the United States, streaming still accounts for less than 50% of television viewing time (as of February).
Lastly, Netflix has been actively expanding its reach, especially in live sports. These initiatives could pay off in the future and help the stock outperform once again.
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Prosper Junior Bakiny has positions at Visa and Walmart. The Motley Fool has positions and recommends Netflix, Visa and Walmart. The Motley Fool has a disclosure policy.
Inflation Is Rising: 3 Stocks You Can Buy to Protect Your Portfolio was originally published by The Motley Fool
