Some investors hate inflation so much that when they see it, they sell stocks pretty instinctively. But not all stocks. They want the stocks of companies that benefit from inflation or can do something about it. When they find them these investors don't care what price they have to pay to buy them.
Now we know you don't need a lot of brain power for some of these ideas. If a company is mining copper and copper's going up in price, you have a winner. That's why Freeport-McMoRan (FCX) works its way higher. You can buy Teck Resources (TECK) , another excellent mineral company. I like Cleveland-Cliffs (CLF) which was once an iron company, the chief component of steel, but now, after two steel acquisitions, has the lowest raw cost of any steel company in the world. We heard from them and from Nucor (NUE) , the lowest cost and best steel company in the world, and they, too, can keep going higher.
You can even buy the stock of Caterpillar (CAT) because they, like Cleveland-Cliffs and Nucor, have told us they are not in trouble with raw costs, because Caterpillar's mining business is a great hedge against those costs.
What else works? Oil's had quite a run but the stocks are still very low. I have rejected most of them but I like, for growth Pioneer (PXD) , and for value and dividend Chevron (CVX) . Most investors don't want that much granularity and would rather own an ETF that has the oils in it. Lately, I have become enamored of the pipeline companies because I think that under President Biden it will be next to impossible to build a new large pipeline. There's been cutthroat competition here but if there's big demand for energy then you can own these. I am worried that some are master limited partnerships, with a positive tax structure that could be taken away by the Biden administration. So I have been suggesting you buy Kinder Morgan (KMI) , good yield and a regular corporation that won't get hurt if the positive MLP tax structures are taken away.
These are all well and good but it's important for people to consider that there's one more group that is now being added to the anti-inflation trade and it is a strange one indeed: the banks. How can you buy a bank when inflation rages? Aren't banks going to lose their value if inflation roars?
The answer is no, because this is not traditional inflation. It's driven by some short-term considerations: tariffs on lumber and steel, an energy policy against new drilling, a super storm that trashed much of our plastic capacity, a terrible chip shortage and higher labor costs because of higher unemployment compensation.
The banks do not have anything to do with any of this. Think about it: the banks are all digitizing and have too many employees. They are trying to shrink their footprint. They don't buy or need any semiconductors. A shortage of those means absolutely nothing to JP Morgan (JPM) or Bank of America (BAC) .
Instead they are a terrific hedge for the moment. If inflation turns out not to be transitory but entrenched then Fed Chief Jay Powell will have to raise short-term rates, which is fabulous for the banks. That's why you are seeing such a strong moves in stocks like Bank of America, Citigroup (C) , JP Morgan, Goldman Sachs (GS) and Wells Fargo (WFC) . Consider them hedged inflation plays.
Candidly I am not crazy about this style of investing. That's because I am beginning to believe that as pervasive as inflation is, if any one commodity starts going down I think they all might come down because they are all trading up in synch. I think that all of this talk about semiconductors being in short supply for many years is a complete misjudgment of the cycle, and it is a cycle. The plastic plants will come back on line. Unemployment benefits will go away. So, sure you can but any of these, but do not buy all of them because you will be betting against the business cycle and, yes, betting against the ingenuity of America.