Warren Buffett Says This is The Best Type of Business to own When Inflation Spikes — in Other Words, What you Should Buy Right Now
Nov 3, 2021
High inflation rates in the country have become a serious concern on Wall Street.
But fortunately for everyday investors, Berkshire Hathaway chief Warren Buffett has plenty of experience in navigating such an environment.
Warren Buffet managed a stock portfolio through periods of double-digit inflation rates in the 1970s and has plenty of advice on what to own when consumer prices spike.
Buffett emphasized two qualities that make a corporation well adapted to an inflationary climate in a 1981 letter to Berkshire shareholders: 1) the ability to readily raise prices, and 2) the ability to take on more business without incurring excessive costs.
Invest in asset-light enterprises with pricing power, in other words.
Let's take a brief look at three businesses that match the bill. One (or all) of these might be worth investing your hard-earned cash in.
Nike is a worldwide footwear behemoth with strong consumer devotion.
Customers are eager to spend top cash for high-profile athletes' signature apparel, such as LeBron James and Michael Jordan.
Despite inflationary challenges, Nike continues to grow gross margins and generate good returns on equity in excess of 30%.
In an increasingly digitized, direct-to-consumer business strategy, the corporation is also capturing the full price of its items.
Digital sales are expected to expand from 20% of revenue today to over 40% of the firm by 2025, according to management. And price hikes might begin as soon as next year.
Surprisingly, profit margins may continue to grow even when operational costs rise in line with inflation.
So far in 2021, Nike stock has gained nearly 19 percent.
Apple's premium-priced hardware is becoming more popular around the world, as are acceptance rates for its high-margin Apple services.
Strong brand identity, user friendliness, and a large range of fully integrated goods are all valuable assets that aren't going away anytime soon.
Customers just cannot afford to leave the Apple ecosystem. As inflation rises, the IT giant will have more flexibility in pricing. The company's new M1 chips, which will progressively replace Intel's CPUs in every Mac, demonstrate the company's dedication to continuous innovation.
It is apparent that Apple can pass on increased prices to a global consumer base without a major drop in sales volumes.
For the excellent reason, Warren Buffett has enabled Apple to expand to 40% of Berkshire Hathaway's investment portfolio: the company consistently grows profits during all economic cycles.
Apple is currently trading at about $150 per share, up approximately 13% year to date. However, if you're on the fence about joining at this time, certain apps may offer you a free share of Apple just for signing up.
Levi Strauss & Co. (LEVI)
Levi Strauss, a world leader in the denim industry, has recently been firing on all cylinders.
Management has been able to boost the top line without surrendering pricing power thanks to its well-known brand and flexible business style.
Revenue climbed 41% in the most recent quarter, while adjusted gross margin increased 390 basis points to 57.5 percent.
In fact, in 2020, management began aggressively adjusting its pricing for inflation.
Raw materials are also sourced from 24 other countries. And because of this supply chain variety, Levi Strauss has a lot of flexibility in times of crisis.
Levi's stock has increased by more than 30% in 2021.
The ultimate 'forever asset'?
Warren Buffett has stated that his preferred holding term is indefinite.
However, forever is a long time, and since firms rise and fall, never selling a share may not be the ideal plan for expanding your wealth.
However, there may be one inflation safe haven worth investing in indefinitely: farmland in the United States.
People must eat regardless of how high or rapidly consumer prices rise. And it just so happens that Buffett's good friend Bill Gates owns the most acreage in the United States.
New platforms now allow you to invest in American farmland by purchasing a share of a farm of your choice.
The leasing payments and crop sales will provide you with cash. On top of that, any long-term appreciation will be beneficial to you.