Kevin O’Leary Says These Are The Best Assets To Own As Inflation Remains White

Kevin O'Leary Says These Are The Best Assets To Own As Inflation Remains White

Kevin O’Leary Says These Are The Best Assets To Own As Inflation Remains White

Inflation remains hot.

In July, US consumer prices rose 8.5% from a year earlier — up from 9.1% in June, but still near a multi-decade high.

The Fed has already raised interest rates several times this year to slow this worrisome trend. It is uncertain how the economy will handle higher interest rates, and stocks are selling off as a result.

The S&P 500 is already down about 14% in 2022.

But investment mogul and Shark Tank star Kevin O’Leary still believes in holding stocks in a rising interest rate environment.

“Even when interest rates go up, stocks are the place to be because fixed income gets hit a lot harder,” he says in an interview with CNBC earlier this year.

Of course, not all stocks are the same. Mr. Wonderful believes in these types of companies in times of rampant inflation.

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Companies with pricing power

In today’s context, O’Leary is looking for companies that have the ability to raise prices without too much of a push from consumers.

“What you want to be in stocks, particularly when interest rates start to rise, is in companies that have price power,” says O’Leary. “In other words, their goods and services are necessary for people, so they are willing to take a small increase in price, sometimes more, as prices go up.”

But where do you find businesses with pricing power?

“Right now healthcare is looking really good and also consumer cyclicals are looking really good,” O’Leary suggests.

He adds that investors should pay attention to companies that make things that people still need in times of inflation, especially “what they eat” and “what they drive.”

Focus on energy

O’Leary singles out the energy sector as a particularly wise place to park some money during times of high inflation.

Fuel to power your car, heat your home or cook your food is more expensive. As a result, energy stocks have had outsized returns for several months.

Even with the recent decline in oil prices, shares of Big Oil ExxonMobil and ConocoPhillips are up about 71% and 92%, respectively, over the past year.

Tech stocks, on the other hand, aren’t doing so well these days. The tech heavyweight Nasdaq is down about 22% year-to-date.

O’Leary adds that technology stocks with high P/Es are facing additional selling pressure because the Fed’s stance on loose money is changing.

“As interest rates rise, P/Es fall, prices correct in stocks.”

O’Leary’s top picks

For long-term investors, holding an ETF that tracks the S&P 500 has been a popular strategy. But O’Leary doesn’t believe in having a broad-based benchmark in today’s environment.

His concerns, once again, center around inflation and the Fed.

“Just owning the index could be very risky because lower-quality balance sheets like airlines right now might not perform as well as interest rates go up because that means their debt service goes up as well.” , says.

Instead, O’Leary suggests holding a subset of the S&P 500, such as his flagship ALPS O’Shares US Quality Dividend ETF.

O’Leary says ETF ownership is a good inflation-fighting strategy because it’s filled with companies that provide products and services that people need.

“He’s looking for the highest-quality balance sheets, companies that generate cash, companies with a high return on assets that make a distribution,” he says.

The ETF’s top five holdings are Johnson & Johnson, Procter & Gamble, Microsoft, Home Depot and Apple.

These companies have been around for a long time. They survived—and thrived—in times of high inflation.

They also provide steadily increasing dividends over time.

What to read next

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This article provides information only and should not be construed as advice. Provided without warranty of any kind.

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