Warren Buffett Says These Are The Best Stocks To Own When Inflation Spikes
Jan 07, 2022
As a consequence of the Fed's huge money printing, prices are growing at a pace not seen in decades.
In November, consumer prices in the United States climbed 6.8% year over year, the fastest rate since June 1982.
If you're holding cash, rising inflation implies that your savings will no longer purchase the same quantity of goods and services as they did before.
Fortunately, financial great Warren Buffett has a variety of advice on buying in times of rising consumer costs.
Buffett emphasized two attributes that helped enterprises prosper during periods of high inflation in a 1981 letter to shareholders: the capacity to easily raise prices and expand without incurring major expenditures.
In other words, invest in firms with little or no fixed assets that have strong pricing power.
Three Berkshire Hathaway businesses meet the bill, plus one that may continue to be in demand regardless of consumer price increases.
American Express (AXP)
American Express (AXP) displayed its pricing muscle by increasing the yearly fee on its Platinum Card from $550 to $695.
Additionally, an inflationary climate favors the enterprise immediately.
The majority of American Express's revenue comes from discount fees merchants are rewarded a percentage of each Amex card transaction. As the price of products and services rises, the business gains from a share of the rising bills.
Indeed, business is flourishing, with sales jumping 25% year over year to $10.9 billion in the third quarter.
American Express is third in Berkshire Hathaway's holdings, after Apple and Bank of America. Berkshire Hathaway has 151.6 million AXP shares worth more than $24 billion.
Berkshire Hathaway also has a modest stake in American Express's rivals, Visa and Mastercard.
Yes, American Express is now trading at a price of more than $160 per share. However, you may get a stake in the company using a well-known method that enables you to buy fractions of shares for any amount of money.
Coca-Cola is the quintessential "recession-proof" company. Whether the economy is prospering or crumbling, the vast majority of people can still afford a basic can of Coke.
Additionally, the company's established market position endows them with considerable pricing power. Additionally, Coca-Cola may always resort to a prior strategy of maintaining the same price while progressively decreasing the bottle size.
Consider the legendary brand portfolio and the fact that Coca-Cola products are distributed in more than 200 countries and territories, and it's simple to see why Coca-Cola is an obvious long-term portfolio addition.
After all, the firm stretches back more than a century. It has endured and expanded multiple bouts of hyperinflation. Buffett has owned Coca-Cola since the late 1980s. Berkshire currently owns around 400 million shares in the firm, valued at approximately $23.1 billion.
While no one thinks $1,600 for an iPhone 13 Pro with all the bells and whistles is a good deal, consumers like paying a premium for Apple goods.
Management said earlier this year that the company's active installed base of hardware devices had topped 1.65 billion, including over 1 billion iPhones.
While rivals offer more affordable gadgets, many users want to remain inside the Apple ecosystem. This implies that if inflation increases, Apple may increase prices without fear of a sales volume reduction.
Buffett's biggest publicly listed firm is Apple, which accounts for more than 40% of Berkshire Hathaway's market value.
One reason for this focus is the exponential growth of the IT behemoth's stock price. Apple's stock price has more than quadrupled in the last five years.