Not every business faces the same challenges in adverse economic conditions. When there is a market crash, or inflation is on the rise, gold stocks tend to outperform the market because the underlying asset, i.e., gold, experiences a significant rise in demand. That’s because gold holds its value.
But inflation, including measures taken to “arrest” it, like rising interest rates, can batter stocks from many industries. One of the first casualties is businesses that rely upon discretionary spending because when the economy is weak and interest rates (and consequently, the cost of borrowing) are high, people tend to limit their discretionary spending.
But between the two extremes — gold and consumer discretionary — several industries and business models fare better or worse during periods of high inflation. If you want to buy non-gold stocks/investments for inflation, Restaurant Brands International (TSX: QSR) is worth considering.
The business
Restaurants Brands International (RBI) is one of the largest food conglomerates, at least in North America. It was originally a combination of three major restaurant/fast food chains, though the company has brought another into the fold. Now, RBI has Tim Hortons, Burger King, Popeyes, and Firehouse Subs under its banner.
This gives the company a massive presence. The largest element of RBI’s portfolio is Burger King, with 18,900 locations in 120 markets. But other brands also boast a solid local and international presence, as well as a loyal customer base. Firehouse is currently the only local brand in RBI’s portfolio, and the other three have over 14,000 international locations collectively.
Why choose RBI for inflation?
RBI is a decent pick, even if we take inflation out of the equation. It returned over 64% to its investors in the last five years (including dividends), and at this pace, the company can double its investors’ capital in less than a decade.
It also showed decent resilience after COVID-19, despite the unique exposure the restaurant business had from the pandemic. It’s also a well-established Dividend Aristocrat that’s offering dividends at a yield of about 3%.
As for why it’s a good pick in inflation, that’s associated with RBI’s business model. Restaurant businesses, especially ones that are as international as this one and do not lean towards fine dining (and discretionary spending), do not experience the brunt of inflation as much as many other businesses.
They are also able to pass on their additional costs and expenses (resulting from inflation) to the customer without losing a significant amount of business.
Foolish takeaway
If you are developing an inflation-resistant portfolio or wish to add inflation-resistant securities in your portfolio that do not offer exposure to gold or other precious metals, RBI can be a good pick. Its post-pandemic performance hasn’t been very attractive, but once we are in a healthy and long-term bull market, the stock may offer decent growth potential as well.
