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

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

Inflation remains hot.

In July, US consumer prices rose 8.5% from a year earlier – down from 9.1% in June, but still close to a multi-decade record.

The Fed has already raised interest rates several times this year to slow that worrying trend. It is uncertain how the economy will cope with higher interest rates, and stocks are being sold as a result.

The S&P 500 is already down about 15% in 2022.

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

“Even if interest rates are rising, stocks are the place to be because fixed income is much more damaged,” he said in a TBEN interview earlier this year.

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

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Companies with price power

Against the current backdrop, O’Leary is looking for companies that have the ability to raise prices without too much consumer restraint.

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“Where you want to be in stocks, especially when interest rates start to rise, are companies that have pricing power,” says O’Leary. “In other words, their goods and services are necessary for people, so they are willing to accept a small price increase, sometimes a larger one, if rates rise.”

But where do you find companies with price power?

“Right now, the healthcare sector looks really good and the consumer cyclical market looks really good too,” suggests O’Leary.

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

Focus on energy

O’Leary calls the energy sector a particularly cautious place to park some cash during periods of high inflation.

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

Even with the recent slump in oil prices, Big Oil stocks ExxonMobil and ConocoPhillips are up about 78% and 101% respectively over the past year.

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Technology stocks, on the other hand, aren’t doing very well these days. The tech-heavy Nasdaq is down about 23% so far.

O’Leary adds that technology stocks with high P/Es are experiencing additional selling pressure as the Fed’s attitude to loose money is changing.

“When interest rates go up, P/Es go down, stock prices get right.”

O’Leary’s top picks

For long-term investors, holding an ETF that tracks the S&P 500 is a popular strategy. But O’Leary doesn’t believe in owning a broad benchmark index in the current environment.

His concerns again revolve around inflation and the Fed.

“Just owning the index can be very risky because lower quality balance sheets like the airlines right now may not perform as well as rates rise because that means their debt service will also go up,” he says.

Instead, O’Leary proposes owning a subset of the S&P 500, such as its flagship fund ALPS O’Shares US Quality Dividend ETF.

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O’Leary says owning the ETF is a good strategy for fighting inflation because it’s full of companies that provide products and services that people need.

“It looks for the highest quality balance sheets, companies that generate money, companies with high returns on assets that do 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 very long time. They have survived – and thrived – during periods of high inflation.

They also offer consistently growing dividends over time.

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