Peruse business media and more often than not, you’ll find yourself inundated with stories about inflation. Naturally, with the highest levels in government focusing on one threat, it’s probably not safe to go against the grain. Still, when seemingly everyone is betting on the same horse, it tempts the case for contrarian stocks to buy.
According to a recent New York Times article, Federal Reserve officials are debating about how to handle a potential inflationary headwind. From Reuters, the International Monetary Fund warned about the possibility of further inflationary pressure should the U.S. sustain fiscal support. This comes on the heels of President Joe Biden attempting to push a multi-trillion-dollar infrastructure plan, to much criticism from Republican lawmakers. Obviously, the next few months have strong implications for stocks to buy.
What makes the matter even trickier is that the U.S. is the leader of the free world. Should inflationary pressures rise, this puts other countries in a bind as commodities are priced in greenbacks. Therefore, a domestic victory regarding the Biden administration’s infrastructure plan won’t be universally well received. That might additionally strain relations with international partners. Thus, the narrative for inflation-based stocks to buy isn’t so clear.
You’ll recall that then-presidential candidate Biden ran on a core campaign message that contrasted with the Trump administration. Rather than having a combative relationship with the international community, Biden promised to instill a cooperative profile. Well, that’s not going to mean much if food prices skyrocket for everyone. Therefore, seeking stocks to buy based on an inflationary assumption is risky.
Indeed, it’s possible that deflation could be a bigger threat to the economy, at least from a long-term perspective. We’re not out of the woods yet regarding our post-pandemic recovery efforts. Also, the delta variant of the novel coronavirus could rear its ugly head. In my opinion, it makes sense to at least consider these contrarian stocks to buy.
- UnitedHealth Group (NYSE:UNH)
- Mercury (NYSE:MCY)
- Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL)
- 3M (NYSE:MMM)
- Walmart (NYSE:WMT)
- CenterPoint Energy (NYSE:CNP)
- Archer Daniels Midland (NYSE:ADM)
Before you attempt swimming against the current, just note that the S&P 500 hit an all-time high on the July 9 session. This dynamic is intriguing for those who believe in the bullish storyline as well as those who think the market is too stretched. For the latter, these contrarian stocks to buy might be up your alley.
Best Stocks to Buy: UnitedHealth Group (UNH)
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If you’re suspicious about the rising speculation in the market, rest assured you’re not the only one. With stock trading on margin at a record high, retail investors should be leery about chasing popular stocks to buy. After all, margin trading gone awry contributed to the devastation of the 1929 market crash, which later bled into the Great Depression.
Admittedly, investing your funds during a deflationary cycle is one of the most difficult tasks to navigate. Nevertheless, if you had to put your money somewhere, you should think about steady names like UnitedHealth Group. As the largest health insurance firm based on the count of covered individuals, UnitedHealth also represents an indelible business.
Basically, circumstances will have to go really sour for people to abandon their health coverage. Plus, the technical posture of UNH stock is confidence inspiring. In the year-to-date, shares have rarely been below their 50-day moving average, a common barometer of nearer-term strength.
Staying on the insurance lane, investors worried about a deflationary risk over the horizon should consider Mercury. Before I get into it, I’m not suggesting that prospective purchasers go all-in on insurance-based stocks to buy. Rather, MCY is just something to think about. Sometimes, when everybody is focused on one risk factor, they could get blindsided by another headwind they weren’t considering.
And even if the worst-case scenario doesn’t materialize, MCY stock is relevant. Primarily focused on automobile and home insurance products, Mercury enjoys a double whammy of upside growth potential. First, you have the blistering housing market, which continues to mesmerize onlookers and deflate buyers. Second, the Bureau of Transportation Statistics reports that traffic levels are steadily returning to normal.
Obviously, this augurs well for auto insurance companies like Mercury because it’s the opposite effect of what happened during the Covid-19 lockdowns. Back then, insurers gave refunds on insurance premiums. Today, the normalization of business should help lift MCY.
Best Stocks to Buy: Alphabet (GOOGL)
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Generally speaking, a technology firm doesn’t organically come up as one of the stocks to buy if you believe either deflation or a market correction is headed your way. Also compounding matters is that many popular or high-profile tech names don’t pay dividends. Unfortunately, this perfectly describes Alphabet, which largely depends on other people believing that GOOG stock will move higher.
Because it doesn’t fit the profile of other deflation-resistant stocks to buy, I wouldn’t go too crazy on Alphabet shares. However, the underlying business offers a contrarian play in that if “stuff” hits the fan, Alphabet’s many products and services will likely prove indispensable — even in rough economic times.
For instance, Alphabet via its world-famous Google brand essentially owns the internet. Also, if circumstances don’t go southbound, the tech giant is associated with multiple groundbreaking innovations, ranging from driverless vehicles to quantum computing.
Lastly, Alphabet is cash-rich, giving it the capacity to win a war of attrition.
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After the horrid time that we all suffered during the Covid lockdowns last year, no one is thinking about going back to quarantine. Frankly, I’m not sure such a proposition is feasible based on how resistant many were to the mitigation protocols.
On that front, White House chief medical advisor Dr. Anthony Fauci has good news. He doesn’t expect a nationwide spike like we saw last fall and winter due to the proportion of people already vaccinated for Covid-19.
However, the delta variant of SARS-CoV-2 is more infectious than prior variants, which may cause spikes in some parts of the U.S. Therefore, you may want to keep your eye on 3M. Generally, MMM has been one of the more disappointing defensive stocks to buy. But the underlying personal protective equipment business could see increased demand because of rising infections.
Plus, there’s always a possibility that circumstances can go seriously awry. Not to sound alarmist but this wouldn’t be the first time that the experts got it wrong.
Best Stocks to Buy: Walmart (WMT)
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When you consider the events that occurred over the trailing one-and-a-half-year period, it’s hard to avoid the temptation of adopting a theistic view of the world. Let’s be real. If we suffered these kinds of calamities in a prior era (that is, without the benefit of the internet and 24/7 news streams), we’d probably be worried that we had offended a higher power.
Further, while it seems as if the majority of American society is looking forward to life back to normal — check out the return of crowds at sporting events — it’s possible that we might face another catastrophic wave of infections. Earlier, I mentioned the threat of the delta variant. Now, reports are circulating that the lambda variant is spreading beyond Latin America.
To be on the safer side with your defensive stocks to buy, you might want to consider Walmart. Admittedly, it’s a worry wart narrative given that overall cases are down sharply in the U.S. But if we have more spikes, we could see pandemic-related demand bursts that could buttress WMT stock.
CenterPoint Energy (CNP)
Given the uncertainties of what might lie around the corner, investors who are not buying the perpetually bullish narrative should give utilities-based stocks to buy a chance. It comes down to a basic and perhaps cynical catalyst: in a modern society, you can’t live without power. Therefore, utilities represent the absolute last business segment that consumers will voluntarily give up.
Indeed, the enormous staying power of utilities stocks to buy is best demonstrated with CenterPoint Energy. I’ve mentioned in prior InvestorPlace articles that the renewable energy sector suffered badly from the Texas winter storm due to attacks against its intermittency.
Well, CenterPoint was at the epicenter of the storm and its resultant power crisis. Not surprisingly, CNP stock suffered a conspicuous dip following the cold snap. But quickly, shares recovered and have since been on an encouraging upside trend channel.
Granted, CNP is on the riskier side of contrarian stocks to buy at this hour. But if you’re looking for a mixture of capital returns, dividend payouts and resiliency under difficult circumstances, CenterPoint Energy is a solid bet.
Best Stocks to Buy: Archer Daniels Midland (ADM)
Another reliable sector for stocks to buy if you anticipate either deflation or a market correction is food processing. While we humans have forwarded profound innovations over the last several decades, we cannot avoid the essentials of food and water. For that reason, Archer Daniels Midland has enjoyed significant profitability, up 53% over the trailing year.
Factors that immediately stand out for ADM stock include revenue loss mitigation during the Covid-19 crisis. In 2020, the underlying company generated top-line sales of $64.3 billion, which was inside half-a-percent of 2019’s tally. Further, Archer Daniels Midland rang up $18.9 billion in sales for the first quarter of this year, up 26% against Q1 2020.
Clearly, demand is on the upswing although recent investor sentiment itself has contradicted the fundamentals. In the trailing month, ADM stock dropped over 10%, which heightens the risk factor. Still, if you want an incredibly relevant name that will see you through difficulties, you probably can’t go wrong with Archer Daniels Midland.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.The opinions expressed in this article are those of the writer, subject to the InvestorPlace.comPublishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.
I am an experienced financial analyst with a deep understanding of market dynamics, economic trends, and investment strategies. Over the years, I have provided valuable insights and analysis on various financial topics, demonstrating a keen eye for market trends and a comprehensive understanding of the factors influencing investment decisions.
Now, let's delve into the concepts mentioned in the article about contrarian stocks to buy amid inflation concerns:
Inflation and Economic Landscape: The article highlights the current focus on inflation, with Federal Reserve officials debating how to handle potential inflationary pressures. The International Monetary Fund (IMF) also warns about further inflation if the U.S. sustains fiscal support, especially with President Biden's infrastructure plan.
Contrarian Stocks and Investment Strategy: The core idea revolves around the potential risks of following mainstream investment trends, especially during times of uncertainty. The article suggests considering contrarian stocks that might perform well even if the market sentiment is leaning towards inflation.
Impact of Inflation on International Relations: The article discusses the implications of U.S. inflation on other countries, as commodities are priced in U.S. dollars. A rise in inflation could strain international relations and impact how other nations perceive the Biden administration's infrastructure plan.
Contrarian Stock Recommendations: The article provides a list of contrarian stocks to consider, including:
- UnitedHealth Group (UNH)
- Mercury (MCY)
- Alphabet (GOOG, GOOGL)
- 3M (MMM)
- Walmart (WMT)
- CenterPoint Energy (CNP)
- Archer Daniels Midland (ADM)
Deflation as a Potential Threat: The article acknowledges the possibility of deflation being a bigger threat to the economy from a long-term perspective. It suggests that, considering the uncertainties in the post-pandemic recovery and the potential resurgence of the delta variant, it might be wise to explore contrarian investment options.
Market Dynamics and S&P 500 Performance: The article notes that the S&P 500 recently hit an all-time high, creating an interesting dynamic for investors who believe in the bullish storyline as well as those who think the market is stretched. The contrarian stocks mentioned could be appealing to the latter group.
Detailed Analysis of Selected Contrarian Stocks: The article provides a detailed analysis of each recommended contrarian stock, highlighting factors such as business resilience, technical posture, growth potential, and relevance to current economic conditions.
In conclusion, the article encourages investors to consider contrarian stocks strategically amid the current economic landscape and potential inflationary pressures. The suggested stocks are presented as options for those looking to diversify and navigate uncertainties in the market.