We’ve heard a considerable number of correction warnings of late. While it has been a while since the stock market suffered a spill of at least 10%, I wouldn’t wait around for it, especially as the market continues its cautious ascent higher.
Undoubtedly, we’ve been hearing pullback warnings from so-called market strategists for quite some time. Thus far, they’ve been proven wrong. And if you sat on your cash, you took a hit from the now higher rate of inflation. You see, inflation doesn’t care if you’re fully invested or if you’re waiting for the perfect moment. It will take a bite out of your purchasing power over time. The longer you stay in cash, the more purchasing power you’ll stand to lose.
The best place to hide from higher inflation?
Common equities may not be huge fans of inflation, but many such names are where you’ll want to be, as the broader basket of goods rises. Specifically, cheap shares of companies with purchasing power are great places to continue to grow your wealth, even when accounting for hotter inflation.
Here in Canada, inflation has shown signs of peaking in the mid-3% range. But will it be pressured back to and below 2%? That’s the million-dollar question. And for investors, I don’t think it’s wise to wait around for a market correction before punching one’s ticket to names that can help you stay above water.
Companies with pricing power and growing dividends are where I’d want to be in the severe, albeit unlikely event that inflation north of 3% sticks around over the long haul. In this piece, we’ll have a look at two great stocks that have already suffered corrections and are in a great spot to help investors navigate through this inflationary environment.
Indeed, hoarding cash and waiting for a correction could leave your portfolio a sitting duck amid continued inflationary pressures.
Consider shares of CN Rail (TSX:CNR)(NYSE:CNI), a nearly 2% yielding dividend grower that already has a vicious correction in the rear-view mirror. While pressure could mount on the name in the event of a broader market correction, I’d be willing to bet that freshly corrected shares of CNR are less likely to crumble as drastically as some of the frothier names in today’s market.
CN Rail is a great railway that really needs no introduction. It’s a North American transportation behemoth that’s likely to continue raking in its slice of economic profits for decades to come. The nearly 2% yield is close to the highest it’s been since rising out of the depths of March 2020. While the macro picture has gotten much better for the rail giant, the stock has been treading water for most of 2021 due to its pricy pursuit of southern railroad Kansas City Southern.
Sure, there are many uncertainties regarding the CN-KSU tie-up. Regardless, I think investors are overreacting to the whole situation. Even if some value is destroyed from a deal, CN stock has already been punished. And with one of the widest moats on the planet, I’d argue that this dip, like so many that occurred before it, is just another unremarkable dip for true long-term thinkers to take advantage of.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Joey Frenette owns shares of Canadian National Railway. The Motley Fool recommends Canadian National Railway.