Cost of living for Americans rose last month as core prices strengthened. An uptick in gas prices and higher rent pushed up U.S. inflation, taking a bite out of household income and putting consumers under pressure.
In such an inflationary environment, investors should buy real estate and gold which increase in value at a rate in excess of the rate of inflation.
Core Inflation Marks Strongest 2-Month Stretch Since 2006
Inflation picked up in July, with the consumer price index (CPI) increasing 0.3% last month from June, on par with analysts' expectations. Over the past 12 months, the cost of living increased to 1.8% from 1.6%, the Labor Department said on Aug 13. Another closely watched measure of prices that excludes volatile food and energy costs, so-called core consumer price index ticked up 0.3% for a second successive month, marking the strongest two-month gain in more than 10 years. Needless to say, the core rate is considered a better source of underlying inflationary trends.
Recent inflation data shows that prices of essential goods have started to strengthen after sluggish price gains at the beginning of this year. What's more, price gains were broad-based last month mostly driven by energy. Price of gasoline in particular went up last month, thanks to the summer driving season. Prices of services including airfares, used vehicles, household furnishing, rent and medical care also went up. Computer prices, in fact, jumped 2.8%, which is the largest monthly increase since the government started tracking them in 2005.
Tariffs imposed by the Trump administration on an array of imported goods in recent times also pushed core prices higher. Michael Feroli, chief U.S. economist at JPMorgan Chase, noted that "import-dependent categories like information-technology commodities and household furnishings and supplies" saw price increases due to tariffs.
How to Profit From Inflation?
Real estate is an obvious choice because a rise in prices increases the resale value of the property over time. Further, as the value of the property rises with inflation, the amount tenants pay in rent can be increased over time. This is how income generated from a real estate property can keep pace with the general rise in prices across the economy. A real estate property is purchased with the intention of earning a return on investment, either through rental income or through future resale of the property.
When inflation is high, the value of paper currency tanks in terms of goods and services it can buy. But rising inflation is good for gold prices , as gold doesn't lose value like currency during times of higher inflation. In fact, as inflation increases, demand for gold moves north. Silver and other metals also tend to gain value during inflationary times. However, gold is generally the headline-grabbing investment.
5 Top Picks
As inflation heats up, investing in the aforesaid areas will be judicious. Real estate can be purchased indirectly through investment in real estate investment trust (REIT), while gold can be purchased by investing in stocks of a company involved in the gold mining business.
We have, thus, selected five stocks that boast a Zacks Rank #1 (Strong Buy) or 2 (Buy) and belong to the real estate and gold space. In fact, the Zacks Mining - Gold industry is presently at the top 6%. Our research shows that the top 50% of the Zacks-ranked industries outdo the bottom 50% by a factor of more than 2 to 1.
Equity Lifestyle Properties, Inc. ELS is a real estate investment trust. The company is an owner and operator of lifestyle-oriented properties (properties) consisting primarily of manufactured home communities and recreational vehicle resorts and campgrounds. The stock currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has risen 0.5% over the last 60 days. The company's projected growth rate for the current year is 8.5%, compared with the REIT and Equity Trust - Residential industry's estimated decline of 0.4%.
Equity Residential EQR is focused on the acquisition, development and management of rental apartment properties located in urban and high-density suburban markets. The stock currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has moved 0.6% up over the last 60 days. The company's projected growth rate for the current year is 5.2%, compared with the REIT and Equity Trust - Residential industry's projected decline of 0.4%.
Kinross Gold Corporation KGC engages in the acquisition, exploration and development of gold properties in the United States. The stock currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has climbed 100% in the past 60 days. The company's expected earnings growth rate for the current year is 140%, way higher than the Mining-Gold industry's expected rally of 11%. You can see the complete list of today's Zacks #1 Rank stocks here .
Barrick Gold Corporation GOLD explores and develops mineral properties. The company primarily explores gold, copper, and silver deposits. The stock currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has advanced 17.9% in the past 60 days. The company's expected earnings growth rate for the current year is 31.4%, higher than the Mining-Gold industry's projected rally of 11%.
Kirkland Lake Gold Ltd. KL engages in the acquisition, exploration, development, and operation of gold properties. The stock currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has increased 7.2% in the past 60 days. The company's expected earnings growth rate for the current year is 63.2%, higher than the Mining-Gold industry's projected rally of 11%.
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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Kinross Gold Corporation (KGC): Free Stock Analysis Report Barrick Gold Corporation (GOLD): Free Stock Analysis Report Equity Residential (EQR): Free Stock Analysis Report Equity Lifestyle Properties, Inc. (ELS): Free Stock Analysis Report Kirkland Lake Gold Ltd. (KL): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research