Warren Buffett says these are the best stocks to own when inflation spikes — with high prices no longer 'transitory,' it might be time to follow his lead
Warren Buffett says these are the best stocks to own when inflation rises - since high prices are no longer "transitory" it may be time to follow suit
After months of soaring prices, the Fed's claim that high inflation rates are "temporary" looks a little temporary in itself.
"It is probably a good time to withdraw that word and try to explain what we mean more clearly," Fed Chairman Jerome Powell said Tuesday. "I think the risk of higher inflation has increased."
A restrictive reaction from the Fed could cause panic in the markets; on Tuesday the Dow lost 652 points.
Fortunately, investment icon Warren Buffett has a lot of advice on what to have when consumer prices rise. The head of Berkshire Hathaway managed a portfolio of stocks with double-digit inflation rates in the 1970s.
In a 1981 letter to shareholders, Buffett highlighted two qualities that help companies thrive amid high inflation: the ability to raise prices slightly and the ability to do more business without spending too much have to.
In other words, invest in asset-light companies with pricing power. Here are three Berkshire stocks to fit the description - plus one asset that can always be in demand no matter how high consumer prices go up.
American Express (AXP)
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American Express recently demonstrated its pricing power by increasing the annual fee for its Platinum Card from $ 550 to $ 695.
The company also benefits directly from an inflationary environment.
American Express makes most of its money on discount fees - merchants are billed a percentage of every Amex card transaction. When the prices of goods and services go up, the company can cut higher bills.
In fact, business is already booming, with the company's third-quarter revenue increasing 25% year over year to $ 10.9 billion.
American Express is the third largest holding in Berkshire Hathaway, only behind Apple and Bank of America. Berkshire owns 151.6 million shares of AXP and is valued at over $ 23 billion.
Berkshire also owns shares in American Express competitors Visa and Mastercard, although the positions are much smaller.
Yes, American Express trades at over $ 150 per share. But you can get a smaller chunk of the business with a popular app that allows you to buy fractions of shares for as much money as you want to spend.
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Coca-Cola is a classic example of what is known as a “recession-proof” business. Whether the economy is booming or struggling, a simple can of Coke is still affordable for most people.
The company's firmly anchored market position also gives it a certain price-setting power. Plus, Coca-Cola can always rely on a trick it has used in the past: keep prices the same but subtly reduce the bottle size.
Take into account its iconic brand portfolio and the fact that its products are sold in more than 200 countries and territories, and it's easy to see why Coca-Cola fits well into a long-term portfolio.
After all, the company went public over 100 years ago. It has survived - and thrived - many periods of high inflation.
Buffett has had Coca-Cola in his portfolio since the late 1980s. Today Berkshire owns 400 million shares in the company, valued at approximately $ 20.1 billion.
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Nobody spending $ 1,600 on a full-featured iPhone 13 Pro would call it a bargain, but consumers still love buying Apple products.
Earlier this year, management announced that the company's actively installed hardware exceeded 1.65 billion devices, including over 1 billion iPhones.
While competitors offer cheaper devices, many consumers don't want to live outside of the Apple ecosystem. That means that as inflation rates rise, Apple can pass higher costs on to its global consumer base without worrying about a drop in sales volume.
Today Apple is Buffett's largest holding, representing more than 40% of the Berkshire portfolio by market value.
One of the reasons for this concentration is the sheer surge in the tech giant's stock price. Over the past five years, Apple stock is up 491%.
Remember, if you don't want to pick individual tech stocks after the sector's massive bull run, you can always automatically build a diversified portfolio simply by using your "spare money".
A potential "perpetual asset"
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Warren Buffett once said that his preferred holding period is forever.
And there is one asset - often used as a safe haven from inflation - that could actually remain in demand forever: farmland.
No matter how high or how fast consumer prices rise, people still need to eat. And it just so happens that Buffett's good friend Bill Gates is America's largest private owner of farmland.
Today, new platforms allow you to invest in US farmland by getting involved in a farm or farms of your choice.
They generate cash income from the lease fees and the sale of plants. And of course you also benefit from long-term appreciation.
This article is for information only and is not intended as advice. It is provided without any guarantee.
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