Stagflation sounds like an ominous term, but the fact of the matter is that we’re all experiencing it right now — inflation, plus slow or stagnant economic growth rate and a relatively high unemployment rate. Think of high inflation from 40 years ago, from the 1970s and 1980s, when oil prices skyrocketed and inflation and unemployment soared.
Q4 2021 hedge fund letters, conferences and more
Now that Russia has invaded Ukraine, inflation concerns also have an effect on commodities like oil and wheat.
In this piece, we'll help you through what to invest in during times of stagflation and name three stocks to consider.
What to Invest in During Times of Stagflation
Economists and investors have alarm bells ringing because stagflation combines the worst parts of recession with inflated prices. When you have a combination of stock declines and unemployment over the long term, it can have effects on your portfolio. But are doomsday predictions really in line? No — business profits are rising fast and at the federal level, thumbscrews are getting put to inflation to try to control it. As with most things, your portfolio should stand the test of time, but there's no reason now why you can't scoop up some real winners.
3 Stocks to Invest in Right Now
Let's take a look at three stocks to consider during this unique economic time. We'll feature Vale SA, Nutrien Ltd., and Halliburton Company in this piece.
Vale SA (NYSE:VALE)
Vale SA, headquartered in Rio de Janeiro, Brazil, produces and exports iron ore, pellets, manganese, and iron alloys. It operates through three main segments: ferrous minerals, base metals, and coal. The company produces and extracts iron ore, iron ore pellets, manganese, other ferrous products, nickel and its by-products, and metallurgical and thermal coal.
The company's adjusted EBITDA was $33.8 billion in 2021, $11.8 billion higher year over year, mainly due to higher realized prices in ferrous minerals and copper, partially offset by higher costs related to commodities prices and freight.
Net income was $22.4 billion in 2021, $7.6 billion higher year over year, due to the higher pro forma adjusted EBITDA and stronger financial results. In March, June and September 2021, $13.5 billion was paid out in dividends and the company's board will pay out additional dividends of $3.5 billion.
The company saw higher sales volumes ($1.433 billion) with iron ore fines and pellets sales increasing 23.3% leading to record iron ore fines sales in Q4.
Nutrien (NYSE:NTR)
Nutrien Ltd., headquartered in Calgary, Alberta, produces and distributes products for agricultural, industrial and feed customers. It operates through retail, potash, nitrogen and phosphate segments, which means the company distributes crop nutrients, crop protection products, seed and merchandise. The potash, nitrogen and phosphate segments produce differentiated chemical nutrients contained in each product.
Nutrien generated net earnings of $1.2 billion and record adjusted EBITDA of $2.5 billion in the Q4 2021 while generating $3.2 billion of net earnings and record adjusted EBITDA of $7.1 billion for full year 2021. Cash flow provided by operating activities in the full year was $3.9 billion.
Nutrien issued full-year 2022 adjusted EBITDA and adjusted net earnings per share guidance of $10.0 to $11.2 billion and $10.20 to $11.80 per share. Adjusted net earnings per share guidance includes our plans to allocate a minimum of $2 billion to share repurchases in 2022 on a balanced cadence throughout the year.
Halliburton Company (NYSE:HAL)
Halliburton Company, headquartered in Houston, Texas, provides services and products to the energy industry related to exploration, development, and production of oil and natural gas. It cements, stimulates and specializes in intervention, pressure control, specialty chemicals, artificial lift, and completion services. The drilling and evaluation segment provides field and reservoir modeling, drilling, evaluation, and wellbore placement solutions so customers can model, measure and optimize their well construction activities.
Halliburton Company announced net income of $824 million, or $0.92 per diluted share, for Q4 2021, compared to Q3 results of $236 million, or $0.26 per diluted share. Adjusted net income for Q4 2021, excluding tax adjustments, was $320 million, or $0.36 per diluted share. This compares to adjusted net income for Q3 2021, excluding special items, of $248 million, or $0.28 per diluted share. Halliburton's total revenue of Q4 2021 was $4.3 billion compared to revenue of $3.9 billion in Q3.
Total revenue for the full year 2021 was $15.3 billion, an increase of $850 million, or 6% from 2020. Reported operating income for 2021 was $1.8 billion, which is up from a loss of $2.4 billion from last year and adjusted operating income of $1.4 billion for 2020.
Combat Stagflation Now
It's a good time to own cheap valuation stocks with high free cash flow and those that pay dividends. When the dollar isn’t worth as much, you may also want to consider investing in crypto. Commodities like precious metals, industrial metals and other industrial and agricultural goods can help you through a stagflation period.
In addition to these, value and cyclical stocks that also trade below what analysts think they are worth and those which follow economic cycles. Gold has often performed well in stagflation environments because it serves as a safe-haven asset during periods of economic uncertainty.
You may want to consider inflation-linked bonds (though they don't offer stellar returns), defensive equity sectors (such as health care) or other sectors that do well during periods of weaker economic growth. It's also an opportunity to turn to traditionally slow-movers during periods of inflation, priming your portfolio for when GDP growth speeds back up in the future.
Should you invest $1,000 in Vale right now?
Before you consider Vale, you'll want to hear this.
MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Vale wasn't on the list.
While Vale currently has a "Hold" rating among analysts, top-rated analysts believe these five stocks are better buys.
Article by Melissa Brock, MarketBeat
