With the world’s most powerful central bank committed to tackling soaring prices, it may be time for investors to consider specific stocks to buy for falling inflation.
Here’s the reason why forward-looking market participants anticipate lower prices over the next several months. In late August, Federal Reserve Chair Jerome Powell delivered his policy speech at the annual economic symposium at Jackson Hole, Wyoming. In it, the central bank leader acknowledged that raising rates to tackle inflation would cause “some pain.” However, not doing anything would lead to bigger problems down the line.
More recently, during a question-and-answer session hosted by the Cato Institute, Powell reaffirmed his commitment to controlling inflation. “I can assure you that my colleagues and I are strongly committed to this project and we will keep at it until the job is done,” he declared. That’s a good sign as any that investors should consider stocks to buy for falling inflation.
Still, this thesis is predicated on the Fed lowering prices while not spiraling the economy into a recession. There’s good deflation and then there’s bad deflation. Assuming we receive the former, below are stocks to buy for falling inflation.
|CTHR||Charles & Colvard||$1.11|
|Z, ZG||Zillow||$34.67, $34.31|
Take just a brief look at the technical chart for PayPal (NASDAQ:PYPL) and you can recognize the ugly situation it finds itself in. On a year-to-date basis, PYPL has hemorrhaged 50%. Many investors dumped the digital payments specialist because of fears of an impending recession. As well, management had to cut its guidance earlier this year.
Nevertheless, PYPL could be one of the stocks to buy for falling inflation. Primarily, getting consumer prices back under control may imply a stabilizing economy: not too hot, not too cold. And stability would be what PayPal needs. Clearly, PayPal caters to those with an entrepreneurial mindset as its underlying business applications present perfect solutions for small businesses. However, nothing freaks out entrepreneurs more than severe economic uncertainty.
Also, some analysts are cautiously optimistic about PYPL. “PayPal can continue its outperformance versus the market …but patience is still required,” James Faucette, analyst at Morgan Stanley, stated in a research note.
Along the lines of a stabilizing economy due to declining prices, investors should take a look at Intuit (NASDAQ:INTU). The company that gets very popular near (and sometimes on) Tax Day because of its TurboTax software, Intuit also appeals to entrepreneurs thanks to its QuickBooks program. However, shares are down 25% YTD, likely stemming from recessionary fears.
After all, if a recession does materialize, there might not be much demand for tax-preparation software.
However, assuming the Fed gets circumstances under control without capsizing the economy, INTU represents an intriguing name among stocks to buy for falling inflation. Again, a stable economy – even if prices end up being a tad higher than pre-pandemic norms – presents confidence. Thus, a rise in entrepreneurship could lead to greater demand for Intuit and by logical deduction, INTU stock.
If you needed a little more convincing, Gurufocus.com considers Intuit to be “modestly undervalued.” With excellent profitability metrics, long-term contrarians shouldn’t ignore INTU.
Although a risky idea among stocks to buy for falling inflation, adventurous contrarians should eyeball Lucid (NASDAQ:LCID). An electric vehicle manufacturer, Lucid distinguishes itself from some other EV upstarts with its focus on premium offerings. Given that regular-sized EVs remain out of reach for the average consumer, Lucid decided to work on the upper-income strata. Eventually, it can work its way down as economies of scale improve.
However, skyrocketing prices have put many EV companies in a bind. According to Kelley Blue Book, the average price of a new EV earlier this year stood at $62,876. Currently, the cheapest Lucid vehicle starts at $87,400, 39% higher than average.
Still, should the Fed succeed in lowering prices, Lucid products could get cheaper. And that will likely expand the company’s total addressable market. Several people have done well during the pandemic so they may be attracted to Lucid’s distinct take on EV luxury. With just a little bit of a discount, the manufacturer could become very enticing.
Warehouse retailer Costco (NASDAQ:COST) represents a “cheating” idea for stocks to buy for falling inflation. That’s because the company can respond to either monetary trajectory effectively.
A few months ago, I made the case for TipRanks that COST offers an effective hedge against inflation. Under an inflationary cycle, the purchasing power of the dollar declines over time. Therefore, it behooves consumers to buy now and buy in bulk. Popularizing the idea of 800 gallons of mayonnaise, Costco presents an ideal solution for rising prices.
However, the retailer should also perform well during deflation. One of the best attributes about Costco is that its consumer base is largely wealthy. In many ways, Costco is a playground for affluent shoppers with plenty of time on their hands. Therefore, a deflationary cycle may inspire upper-middle-class consumers to pick up discounts on previously expensive products.
To be sure, deflation will reverse the incentivization profile mentioned earlier. However, that could be more than made up for through increased purchases of bigger-ticket items.
For millions of American families, attending a Disney (NYSE:DIS) theme park represents a vital bonding experience. Unfortunately, inflation has made visiting its famous parks and resorts trickier.
According to the Los Angeles Times, “For Disneyland fans, the added food costs come on top of jumps in ticket prices, up as much as 8% last year, and parking, which soared 20%. The new skip-the-line fee, introduced in December 2021, adds $7 to $20 per ride for those who pay it.” Per the LA Times, the culprit is inflation.
However, contrarian investors must then ask the question: What if Powell succeeds in taming rising prices without killing the economy? If he manages to pull this balancing act off, Disney could be one of the stocks to buy for falling inflation.
Let’s be real. For all the controversies that Disney may generate, it remains an American icon. People want to go to its theme parks and resorts. They just find themselves increasingly priced out. However, a deflationary counterforce could make DIS interesting again.
Charles & Colvard (CTHR)
Based in North Carolina, Charles & Colvard (NASDAQ:CTHR) claims to provide the most brilliant moissanite and lab-grown diamond jewelry in the world. However, luxury outfit Charles & Colvard fell under hard times this year because of skyrocketing prices. Since the start of the year, CTHR hemorrhaged a staggering 61% of market value.
Therefore, this idea comes with a strong warning. It’s only appropriate for the most risk-tolerant contrarians. However, if that fits your profile, CTHR could be one of the stocks to buy for falling inflation. Primarily, the bullish narrative centers on consumer accessibility.
Intuitively, a theory exists that rising economic woes (such as inflation) cause people to delay life events like marriage. And that would logically mean fewer marriage proposals. However, a cycle of declining prices could spark the reverse effect.
To be fair, the theory of recessions hurting marriage rates remains hotly debated. However, lower prices would likely be a net positive for a luxury name like Charles & Colvard.
Zillow (Z, ZG)
Confession time: I have trashed public real-estate firms like Zillow (NASDAQ:Z, NASDAQ:ZG) for the last several months. Honestly, I’m not seeing how a disruptive pandemic and a Federal Reserve committed to raising interest rates to rein in soaring inflation could be positive for the housing market. Still, in keeping with the theme – stocks to buy for falling inflation – let me set aside my personal biases.
It’s possible that not everyone with money rushed into last year’s incredible bull market in the housing sector. Some may have smartly set aside the money that Uncle Sam distributed. And the real geniuses probably invested those funds to exponentially grow their wealth. However, if you’re that smart, you probably didn’t want to buy into what looked like a bubble.
Therefore, should the Fed help lower costs, Zillow may find itself as one of the stocks to buy for falling inflation. I’m not holding my breath, mind you. But a narrative for bullishness does exist.
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On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.