Inflation is a word that hasn’t been uttered that much for the past few years, and with good reason. With the exception of the run of oil to more than $100 a barrel a few years ago, rampant inflation has all but been exorcised from the Wall Street lexicon. Increasing productivity, combined with cheap foreign labor, has kept prices level for years.
A new Deutsche Bank research report says that some investors may be thinking the Federal Reserve is behind the curve when it comes to growing inflationary signs. The last big bout with inflation in the 1970s brought along with it terrible stock market performance. Deutsche Bank says that the top sectors to own at the beginning of an inflationary period are real estate, energy and semiconductors, while later on in the cycle investors should look to move into food and staples, retail and autos.
It is more likely that we stand at the front end of the inflation cycle, if there indeed is one, so we screened our Wall Street research data base for stocks to buy that fit the early cycle sectors and also paid good dividends.
Simon Property Group
This top company is one of the largest real estate investment trusts (REIT) and boasts an outstanding market position. Simon Property Group Inc. (NYSE: SPG) invests in the real estate markets across the globe. It engages in investment, ownership, management and development of properties, primarily regional malls, premium outlets, mills and community/lifestyle centers. Through its subsidiary partnerships, it owns or has an interest in about 230 properties in the United States and Asia. The company also has a 28.9% interest in Klepierre, a European REIT with over 260 shopping centers in 13 countries.
Shareholders receive a 3.1% dividend. The Thomson/First Call consensus price target for the stock is $220.11. The shares closed most recently at $201.44.
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Chevron
This is very solid story for investors looking to stay long the energy sector, and it’s a preferred U.S. company to own now. Chevron Corp. (NYSE: CVX) is a U.S.-based integrated oil and gas company, with worldwide operations in exploration and production, refining and marketing, transportation and petrochemicals. The company sports a sizable dividend and has a solid place in the sector when it comes to natural gas and liquefied natural gas (LNG). Some Wall Street analysts estimate the company will have a compound annual growth rate of over 5% for the next five years, and the stock trades at a modest valuation discount to some of its mega-cap peers.
The company’s Permian Basin assets are a goldmine, and that the Australian LNG business will transition from a yearly $8 billion capital consumption drag to a $2 billion to $3 billion contributor. Combined with the much lower overall capital spending for the 2016 to 2018 period, the company is poised to not only hang around, but end the sector slump in a much better position.
Chevron investors receive a massive 4.51% dividend. The consensus price target is $96.11. Shares closed most recently at $94.85.
Enterprise Products Partners
This is one of the largest publicly traded partnerships and a leading North American provider of midstream energy services to producers and consumers. Enterprise Products Partners L.P. (NYSE: EPD) once again, despite the energy slump, recently raised its distribution 1%. The company maintains a very good long-term position in the market. It provides many of its services on the basis of long-term, fixed-fee contracts, insulating against some of the wilder swings of the commodities that it trades in.
One reason many analysts may have a liking for the stock might be its distribution coverage ratio. That ratio is well above one times, making it relatively less risky among the master limited partnerships. The company’s distributions have grown for several quarters and are expected to continue in 2016. Plus Standard & Poor’s current rating is BBB+, which is investment grade, and the outlook is stable.
Enterprise investors receive a 6.35% distribution. The consensus price target is, and shares ended last week at $24.55.
Intel
This top chip stock traded sideways all last year and actually closed down from where it started 2015. But with $21 billion of cash on the books, the dividend looks very safe. Intel Corp. (NASDAQ: INTC) designs, manufactures and sells integrated digital technology platforms worldwide.
The company’s platforms are used in various computing applications, including notebooks, two-in-one systems, desktops, servers, tablets, smartphones, wireless and wired connectivity products, wearables, retail devices and manufacturing devices, as well as for retail, transportation, industrial, buildings, home use and other market segments.
Intel does a stunning 82.4% of its sales overseas, the lion’s share of it in Asia, where the chips that it produces are used in personal computers, tablets and other personal electronic devices.
Intel investors receive a 3.26% dividend. The consensus price target is $35.94. Shares closed most recently at $31.88.
Lam Research
This remains one of the top chip equipment picks across Wall Street. Lam Research Corp. (NASDAQ: LRCX) designs, manufactures, markets, refurbishes and services semiconductor processing equipment used in the fabrication of integrated circuits. The company offers plasma etch products that remove materials from the wafer to create the features and patterns of a device.
Many Wall Street analysts have highlighted the company and its peers as having a significant equipment opportunity from the NAND evolution as well. Lam Research also appears well positioned to gain share in the wafer fab equipment market, driven by a strong focus on technology inflection spending over the next few years.
Despite so-so foundry and logic spending, many on Wall Street think that Lam Research also will continue to benefit from technology transitions such as FinFET, 3D NAND, multi patterning and advanced packaging in 2016 and beyond. Many analysts believe it is the “cleanest” semi cap story, benefiting from cyclical tailwind, SAM expansion and share gains.
Investors receive a 1.5% dividend. The consensus price objective is $91.61. Shares were last seen at $78.88.
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While the thought of massive inflation hitting consumers seems unlikely after years of low pricing, many companies are raising their prices, and in many cases, it is on products in which there is little resistance. Investors concerned about those increases should look at these stocks and sectors for guidance.
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