The world faces record-high inflation right now. However, the rising cost of living is mitigated if your income rises alongside it. When wages drop while prices are rising, that when the real trouble starts. It’s a phenomenon known as stagflation, and it could already be here.
Economists worry that if economic growth and employment drops while inflation remains elevated, we could see the first wave of stagflation since the 1970s. Investing during this time is relatively difficult. However, there are some ways investors can protect their portfolios.
Here are the top three stagflation plays for 2022.
Barrick Gold
Gold is widely considered a safe haven during times of extreme distress. This is probably why central banks across the world hold the metal in reserve. Gold had a strong rally in the 1970s, surging from US$35 to US$900 per ounce by the end of the decade. This time, the price action may not be as extreme, but it could still be lucrative.
Canada’s largest gold miner Barrick Gold (TSX:ABX)(NYSE:GOLD) is a top bet in this sector. The company has mines and operations spread across the world. This gives it economies of scale and operational efficiency.
The stock is up 21.7% year to date, which already puts it ahead of much of the stock market. Meanwhile, the stock delivers a dividend yield of 1.8%. In a stagflationary scenario, gold could be a safe bet. That’s why Barrick Gold should be on your watch list or portfolio.
Fortis
Gold derives its value from stability, but essential businesses like Fortis (TSX:FTS)(NYSE:FTS) derive their value from utility. Producing electricity is a safe business model despite the crisis. During stagflation, consumers can cut back on holidays and dining out, but not on utility bills.
This is probably why Fortis has been steadily generating value for over three decades. It’s lived through multiple financial crises, inflationary waves, and wars. Every year, the company has delivered a dividend hike without fail.
In fact, Fortis is on track to deliver 50 consecutive years of steady dividend growth next year. The company’s management is confident about raising the payout by 5-6% for the foreseeable future. That makes this stock’s 3.4% yield one of the safest on the market.
Dollarama
Discount retailers like Dollarama (TSX:DOL) are another potential stagflation play. Higher inflation and lower wages put tremendous pressure on household finances. Many could pivot to discount retailers offer cheaper home essentials.
Dollarama has been an excellent long-term bet. Since the previous financial crisis in 2009, the stock has rallied 2,116%. Investors can expect lower, but robust growth in the near future.
The stock currently trades at just 33 times earnings per share. That’s a fair price for a company with strong demand and sizable growth opportunities. Keep an eye on it.
