You are receiving this email because you are subscribed to Behind the Markets. If you no longer wish to receive these emails, please unsubscribe here.
Dear Reader, Announcement: Tomorrow at 8:00pm eastern I’ll be going LIVE for the first time in 5 years. If you haven’t yet registered to join us, you won’t want to miss the lively discussion on My No. 1 Retirement Play for 2024. Click here to register now. === Today I want to talk about how to protect yourself from inflation. And it’s probably not in the way you think. 
As we discussed last week, and as Paul Tudor Jones said in his interview with CNBC, “all roads lead to inflation.” And frankly, have you ever known a new president, no matter who wins, to come into office and not spend money? I haven’t. So we all know that spending seems very likely to continue. Of course, spending leads to inflation and inflation leads to the depreciation of our currency. So, one of the most common questions I’ve gotten in the last week is: How do we protect ourselves from inflation? Should I buy gold? Should I buy commodities? I’m going to tell you something not many people know. One of the best ways – my favorite way – to protect against inflation is investing in the stocks of companies that have “pricing power.” That means they can raise prices above inflation without taking a hit to demand. During an inflationary time, you want to avoid companies that don’t have pricing power and that have big capital expenses. I’m going to break those things down for you… Pricing Power: I’m going to take one of my favorite companies – Hershey. Hershey is a company that’s been able to raise its prices above the rate of inflation. Meaning, if the price of cocoa goes up 2%, so inflation hits them on their cost side, they’ve been able to raise the price of a Hershey bar 3%, 4%, 5%, and consumers – people like me – we keep buying them! And there is only a very small handful of companies that can actually raise their prices above the rate of inflation. Out of 15,000 publicly traded companies out there, maybe 400 or 500 actually have pricing power. Companies like that actually grow above the inflation rate in an inflationary environment. They do very well! Big Capital Expenses Now think General Motors. Remember – inflation means the cost of everything goes up. It also means the cost to replace big plants that manufacture cars goes up. So imagine you’re General Motors … You’ve got this massive plant you built in 2000. By the time 2025 comes around you’ve got to construct another plant to build this new type of EV. Now, the cost to build that plant will be substantially higher today than it was before. So that really eats into cashflow. Especially for companies like GM that don’t have pricing power. So here’s my 3-point playbook for inflation: - Find companies that have pricing power.
- Find companies that have low capital spending which will increase return on investment.
- Find companies that have little or no debt.
Companies that meet these three criteria actually perform better than gold, commodities, any of these other alternative things over time. And the good news is, companies that have pricing power include many of the magnificent seven tech stocks. You have to think of the S&P 500 like a neighborhood ... A very big neighborhood with 15,000 companies. There are only select little pockets in that neighborhood that actually have pricing power … That can pass inflation costs down to their customers and customers will keep buying their product, basically as long as their price is marched up reasonably in relation to inflation. Look, a Hershey bar costs what, $1.50 now? When I was growing up it was like 50 cents. That’s inflation. But you know what, it wouldn’t shock me if it was $2.00. If inflation goes up 2%, I’ll pay an extra 5% for my Hershey bar. (I don’t eat it a lot, and I’m getting to the age where my son and my daughter look at me like, really? You really need another one of these? They don’t realize that yes, I do –my soul needs more Hershey.) So anyway, the big takeaway for today is: You don’t need to be a goldbug … You don’t need to invest in Bitcoin or gold or any asset that doesn’t produce cash flow. You can focus on companies that have pricing power, low capital expenses and low debt – which basically means the return on capital investment is high – and you’ll do terrific during times of inflation. As a matter of fact, companies like this end up marching up and being leaders and really taking off. So we’re going to be looking for more of those. These are the kinds of companies I buy anyway, because they have economic characteristics that do better in any market. But they especially shine during periods of high inflation. I hope you’ll join me tomorrow night when we discuss a company I believe will TRULY shine this year and could be the single greatest investment to help secure your retirement. It’s my first live webinar in five years and it’s FREE to attend. I hope to see you there. Click here to register. "The Buck Stops Here," 
P.S. At 9:15 this morning, we’re releasing our "buy alert" of the week...
Our last "buy alert" this time-sensitive is already up 160%...
But this alert expires in 48 hours...these opportunities move fast.
Please check this out while you still can. | 
No comments:
Post a Comment