It’s an old term, so old that many younger investors may not even really know what it means. While the term “stagflation” was coined in the early 1960s, it is most often associated with the dreadful economic conditions that were in place in the 1970s. After the Arab oil embargo early in the decade, the U.S. economy experienced five negative quarters of gross domestic product growth. Hence, you had a stagnant economy with rising inflation, or stagflation.
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In a new research report, BofA Securities dug into the research archives looking for companies that performed well during periods of stagflation. They said this when discussing methodology: “We screened for the top 50 S&P 500 companies with the best historical performance during periods of stagflation (below-trend growth and rising inflation) – based on stocks with data available back to 1968 (165 companies).”

We in turn screened the BofA Securities list looking for dividend-paying stocks that were Buy rated at the firm, and were reasonably priced and produced among the highest median returns during periods of stagflation. We found five that are outstanding ideas for investors somewhat wary of the market but want to stay involved. While all these stocks are rated Buy, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

Altria

This maker of tobacco products offers value investors a great entry point now and was hit recently as cigarette sales have slowed. Altria Group Inc. (NYSE: MO) is the parent company of Philip Morris USA (cigarettes), UST (smokeless), John Middleton (cigars), Ste. Michelle Wine Estates and Philip Morris Capital. PMUSA enjoys a 51% share of the U.S. cigarette market, led by its top cigarette brand Marlboro.

Altria also owns over 10% of Anheuser-Busch InBev, the world’s largest brewer. In March 2008, it spun off its international cigarette business to shareholders. In December 2018, the company acquired 35% of Juul Labs, and it has purchased a 45% stake in cannabis company Cronus for $1.8 billion.

Shareholders receive a 7.48% dividend. BofA Securities has a $58 target on Altria stock, and the Wall Street consensus target is $54.31. The shares closed Tuesday trading at $48.11 apiece.

Nobody will stop enjoying chocolate just because the economy turns lousy. Hershey Co. (NYSE: HSY) manufactures and sells confectionery products and pantry items.
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The Pennsylvania-based company offers chocolate and non-chocolate confectionery products; gum and mint refreshment products comprising mints, chewing gums and bubble gums; pantry items, such as baking ingredients, toppings, beverages and sundae syrups; and snack items, including spreads, meat snacks, bars and snack bites, mixes, popcorn and protein bars, and cookies.

The company provides its products primarily under the Hershey’s, Reese’s, Kisses, Jolly Rancher, Almond Joy, Brookside, barkTHINS, Cadbury, Good & Plenty, Heath, Kit Kat, Lancaster, Payday, Rolo, Twizzlers, Whoppers, York, Ice Breakers, Breathsavers, Bubble Yum, SkinnyPop, Pirate’s Booty, Oatmega, Paqui and ONE Bar brands, as well as under the Pelon Pelo Rico, IO-IO, and Sofit brands.

Hershey stock investors receive a sweet 2.00% dividend. The BofA Securities price target is $192, while the consensus target is $185.74. The stock closed at $181.71 on Tuesday.

JPMorgan

This stock trades at a still reasonable 12.0 times estimated 2021 earnings. JPMorgan Chase & Co. (NYSE: JPM) is one of the leading global financial services firms and one of the largest banking institutions in the United States, with about $2.6 trillion in assets. The company as it is today was formed through the merger of retail bank Chase Manhattan and investment bank J.P. Morgan.

The firm has many operating divisions, including investment and corporate banking, asset management, retail financial services, commercial banking, credit cards and financial transaction services.

Top analysts are very positive on JPMorgan, largely because the industry titan faces a continued broad recovery in nearly every aspect of its business. It has a leading M&A advisory and capital markets product set and market share. It has a massive footprint of corporate and commercial banking customers. And it has a sizable wholesale payments businesses. The bank has proven that it has the wherewithal to invest continually in people, products, and platforms to further its market share base, extending its competitive advantage versus most peers.

Investors receive a 2.33% dividend. The $190 BofA Securities price objective is well above the consensus estimate of $173.48. JPMorgan Chase stock closed Tuesday at $171.40.

After its 2019 merger, this is now the sixth-largest defense company. L3 Harris Technologies Inc. (NYSE: LHX) is an agile global aerospace and defense technology innovator engaged in the provision of defense and commercial technologies across air, land, sea, space and cyber domains.
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Its Integrated Mission Systems segment includes intelligence, surveillance and reconnaissance; advanced electro optical and infrared; and maritime power and navigation. The Space and Airborne Systems segment comprises space payloads, sensors and full-mission solutions; classified intelligence and cyber defense; avionics; and electronic warfare.

Top Wall Street analysts have felt for some time that the company is situated well in the high growth buckets of the Defense Department budget, and many believe the business is not as short-cycle as the market historically has perceived. Merger synergies give the business a unique path to cash flow and margin upside, along with above-average revenue growth.

Shareholders receive a 1.75% dividend. BofA Securities has set a $292 price target. L3 Harris Technologies stock recently hit a 52-week high of $246.08 a share, but it was last seen on Tuesday at $233.39, which was down almost 5% on the day.

Schlumberger

This top oil services company is expected to benefit from increased global exploration and production spending. Schlumberger Ltd. (NYSE: SLB) is the world’s largest provider of services and equipment used in drilling, evaluation, completion, production and maintenance of oil and natural gas wells.

The company operates in the oilfield service markets through three groups: Reservoir Characterization, Drilling and Production. Reservoir Characterization Group consists of the principal technologies involved in finding and defining hydrocarbon resources. These include WesternGeco, Wireline, Testing Services and Schlumberger Information Solutions.

Rising activity, backlog additions for integrated projects and the possibility that international pricing could continue to climb and should improve the rest of 2021 and into next year are huge positives for the company. That should be very supportive of improving earnings over the next few years.

Shareholders receive a 1.46% dividend. The BofA Securities target price of $42, which would be a multiyear high. The stock ended trading on Tuesday at $34.26 per share.

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These five top stocks have among the highest median returns during periods of stagflation, are rated Buy and all pay dependable dividends. In addition, all five are very good ideas for nervous investors, as they should all be able to ride out periods of volatility and the inevitable large sell-off.

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