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2 “strong buy” stocks that can benefit from inflation
Concerns about inflation are rising and, as a consequence, the stock market is down. Inflation-sensitive stocks, especially tech giants, have fallen in recent trading sessions as government bond yields have soared. Unsurprisingly, the factors behind inflation concerns are directly related to the pandemic situation. There is the huge fiscal stimulus of COVID’s legislative relief packages, which are helping to fuel this inflationary pressure, but there is also the ongoing vaccination program that continues to reach more than 1 million people a day and keeps the promise of a return under the most normal conditions. So the question now is: what should investors do? In the short term, at least, the chance of inflation outweighs the positive news about the retreat from the COVID epidemic is real. With that in mind, Wall Street professionals advise looking at sectors “resilient to inflation”. Using the TipRanks database, we identified two stocks that, according to high-level analysts, could potentially win if inflation stabilized. In fact, both received overwhelmingly optimistic praise from Street, enough to win consensus from “strong buy” analysts. Applied Materials (AMAT) We will start with a producer of technological goods, Applied Materials. Like any manufacturer, the materials applied can survive in an inflationary environment; As the cost of raw materials increases, the company passes it on to its own customers through higher prices for finished products. Nobody likes that, but the company’s products are essential in the technology industry. Applied Materials manufactures integrated circuit chips for electronic devices; flat panel monitors used in TVs, computer monitors, smartphones and tablets; and coatings for flexible electronics. AMAT generates more than US $ 17 billion in annual revenue, has more than 14,000 patents and applies more than US $ 2.2 billion annually in R&D work. In its recent quarterly report for fiscal 1Q21, Applied Materials reported revenue of $ 5.1 billion, an increase of 24% over the previous year, and earnings of $ 1.22 per share. EPS was stable sequentially, but increased 27% year on year. These results came about because the company’s shares registered strong gains. AMAT’s shares have risen 101% in the past 12 months, far surpassing the broader markets. The gains reflect the increased demand for the company’s products due to the increase in telecommuting, virtual offices and remote education. In his note on Applied Materials, B. Riley’s 5-star analyst Craig Ellis takes an optimistic stance. “We believe that the conclusions affirm a bullish thesis and we suspect that the EPS of Street FY21 and 22 will move materially upwards, despite retaining a considerable increase in IT / LT… Semi sales led the top side of the 1Q, all segments have exceeded our forecast, and we believe that a robust force will persist deep into the AC21… $ 70 from AMAT The vision of the B + CY21 sector surprised the most, surpassing its close peers… pointing directionally to our vision of + 72- $ 74B, ”noted Ellis. To that end, Ellis classifies the stock as Buy, and its target price of $ 150 implies a 30% appreciation potential for the next year. (To view Ellis’ history, click here) In general, there are 22 recent reviews on Applied Materials and no less than 19 are to buy. The rest are Holds; the analysts’ consensus view of stocks is a strong buy. AMAT is priced at $ 115.44 and the average target price of $ 133.95 suggests an increase of 16% from that level. (See AMAT stock analysis at TipRanks) Citigroup (C) Next, Citigroup, is one of the four banking institutions in the United States. For banks like Citi, which are net lenders, the tendency of inflation to raise interest rates is an advantage. In the long run, higher rates will increase loan profitability faster than inflation will erode repayments. In this environment, the banking sector could outperform the S&P 500 in the long run, if inflationary trends raised basic interest rates. In the meantime, an analysis of Citi’s current situation shows that revenues and profits have still declined year on year, although EPS has shown strong sequential gains. In 4Q20, the bank reported revenue of $ 16.5 billion, down 10% year-on-year, and earnings per share of $ 2.08. Gains fell 3% yoy, but increased 48% over the third quarter. Oppenheimer 5-star analyst Chris Kotowski advises investors to maintain tension despite losses year after year. “Our advice for investors is to take a deep breath, look at the numbers and see that they were basically aligned and that the outlook has not really changed much from where they were before … we are maintaining expectations for a significant wave of loan losses in 2H21E described in our preview [but] we think that the great probability is that this will prove to be very conservative and returns will return to normal in 2022E ”, said Kotowski. In line with his optimistic approach, Kotowski assesses that C shares an Outperform (ie, Buy) along with a target price of $ 114. Investors can pocket a 62% gain if the analyst’s thesis materializes. (To view Kotowski’s track record, click here) Overall, there is broad agreement on Wall Street on the fundamental quality of the shares. Citigroup’s strong purchase consensus rating is based on 12 purchases and 3 waiting. C is selling for $ 70.38 and the average price target of $ 79.80 suggests an increase of ~ 13% over the year. (See Citi’s stock analysis at TipRanks) To find good ideas for stock trading with compelling valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that brings together all TipRanks stock insights. Disclaimer: The opinions expressed in this article are exclusively those of the analysts presented. The content should be used for informational purposes only. It is very important to do your own analysis before making any investment.