The stock market took a hit when the U.S. Department of Labor recently reported the consumer price index jumped 4.2% in April, its largest gain since 2008. The Federal Reserve dismissed inflation as "transitory" and a symptom of a reopening economy. However, many investors reacted to the number out of fear that inflation could be here to stay. Bank of America recently compiled a pro-inflation stock screen to identify stocks that have historically demonstrated strong performance during inflation. Here are eight inflation investments for investors looking to protect their portfolios.
Mosaic Co. (ticker: MOS)
Mosaic produces concentrated phosphate and potash crop nutrients for the agricultural industry. Analyst Steve Byrne says investors don't fully appreciate Mosaic's earnings potential. Phosphate prices have been rising, and Byrne expects them to stay above $100 per ton throughout the rest of 2021. While other commodity chemical prices have experienced temporary price spikes due to supply shocks, Byrne says fertilizer commodity prices should remain elevated as part of a multiyear agriculture growth cycle. Byrne expects an unusually high floor for fertilizer prices this summer. Bank of America has a "buy" rating and a $43 price target for MOS stock.
Freeport-McMoRan (FCX)
Freeport-McMoRan is the world's largest publicly traded copper producer. Copper prices are soaring, and analyst Timna Tanners says Freeport will experience a surge in free cash flow as a result. Tanners is bullish on copper and projects that Freeport will more than triple its free cash flow in 2021 to $3.5 billion, up from just $1.1 billion in 2020. Tanners says the excess cash is a godsend for Freeport, which can use it to aggressively pay down debt and eventually increase its shareholder returns. Bank of America has a "buy" rating and a $40 price target for FCX stock.
Advanced Micro Devices (AMD)
Semiconductor company Advanced Micro Devices produces personal computer central processing units and graphics processing units, as well as server chips for data centers. AMD's revenue growth is accelerating, and the company is gaining market share in the rapidly growing $70 billion computing market. Analyst Vivek Arya estimates AMD can eventually expand its market share from 15% to 25%, and the company is on a path to $4 in earnings per share in the long term. Arya says AMD investors shouldn't sweat temporary semiconductor supply constraints. Bank of America has a "buy" rating and a $110 price target for AMD stock.
Incyte Corp. (INCY)
Incyte is a biotechnology company that develops oncology therapeutics. Incyte shares are down 15% in the past year, but analyst Tazeen Ahmad says the pullback is a buying opportunity for long-term investors. Ahmad says there is a large market opportunity for treatment of atopic dermatitis, and Incyte is awaiting approval from the U.S. Food and Drug Administration for its ruxolitinib cream by the end of June. Also, Ahmad estimates Incyte's Jakafi sales will exceed $3 billion annually by 2027. Bank of America has a "buy" rating and a $110 price target for INCY stock.
Western Digital Corp. (WDC)
Western Digital designs and produces storage solutions for data centers, personal computers and mobile devices. Analyst Wamsi Mohan says Western Digital's first-quarter earnings report suggests the company is in the early stages of a cyclical rebound. NAND, a type of flash memory, sales are recovering, and Mohan forecasts improvement in both NAND and hard disk drive margins in coming quarters as 18 terabyte HDD unit sales ramp up. Finally, Mohan says long-term agreements with cloud companies are a positive that could lead to a more favorable pricing environment. Bank of America has a "buy" rating and an $80 price target for WDC stock.
Applied Materials (AMAT)
Applied Materials is the world's leading producer of wafer fabrication equipment for the semiconductor industry. Arya says Applied Materials offers investors a sustainable, high-quality growth investment at an attractive valuation. The company's exposure to artificial intelligence and the Internet of Things makes Applied Materials one of his top stock picks. He says Applied Materials is best positioned to address increasingly complex needs within the semiconductor and semicap equipment markets. Arya predicts that sustained growth and cash flow generation should trigger earnings multiple expansion over time. Bank of America has a "buy" rating and a $170 price target for AMAT stock
Qualcomm (QCOM)
Qualcomm is a semiconductor stock focused on advanced broadband technology. Analyst Tal Liani says Qualcomm's impressive first-quarter numbers are a testament to its technology leadership. Qualcomm is gaining semiconductor market share and expanding into areas such as radio frequency front end, automotive technology and IoT. In the most recent quarter, RF sales were up 39%, IoT sales were up 71% and automotive sales were up 40%. Liani says supply constraints could ease around the time customers typically launch new high-end products for the holiday season. Bank of America has a "buy" rating and a $200 price target for QCOM stock.
Pioneer Natural Resources Co. (PXD)
Pioneer Natural Resources is a U.S. oil and gas producer focused primarily on the Permian Basin in Texas. Crude oil prices are up 155% in the past year, and inflationary pressures could drive them even higher in the near future. Analyst Doug Leggate says Pioneer has a best-in-class position in the Permian Basin and far surpasses competitors in portfolio capital efficiency. Leggate projects $2.3 billion in free cash flow over the remainder of 2021 and more than $4 billion in 2022. Bank of America has a "buy" rating and a $192 price target for PXD stock.
Qualcomm (QCOM)
Qualcomm is a semiconductor stock focused on advanced broadband technology. Analyst Tal Liani says Qualcomm's impressive first-quarter numbers are a testament to its technology leadership. Qualcomm is gaining semiconductor market share and expanding into areas such as radio frequency front end, automotive technology and IoT. In the most recent quarter, RF sales were up 39%, IoT sales were up 71% and automotive sales were up 40%. Liani says supply constraints could ease around the time customers typically launch new high-end products for the holiday season. Bank of America has a "buy" rating and a $200 price target for QCOM stock.
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