Inflation is currently at 10% in the UK and 8% in the US. As higher prices lead to lower profit margins, I’m trying to figure out the best stocks to buy for my portfolio.
Costco
Top of my list is Costco. The stock is down around 17% since the start of the year and I think this could be a great time for me to pick up some shares.
Costco sells products that people use each day and it has a reputation for having the lowest prices around. I believe that this will allow it to do well as household budgets come under pressure.
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With a price-to-earnings (P/E) ratio of around 35, the stock isn’t cheap and this brings risk. But the prospect of 11% forecasted earnings growth in a stable sector attracts me to Costco shares.
Experian
I also see Experian (LSE:EXPN) as one of the best stocks to buy now for my portfolio with inflation on the rise. The share price has fallen by 26% since the beginning of January.
Experian’s business is built on a database that is nearly impossible for a competitor to replicate. I think that this will help in an inflationary environment for two reasons.
It means that the FTSE 100 business doesn’t have significant maintenance costs, protecting it from rising prices. It also allows Experian to increase prices, since competition is limited.
The risk with this stock comes with the possibility of rising interest rates reducing demand for loans. But I believe the decline in the company’s share price means that there’s still a return for me.
Mastercard
I also have Mastercard as one of my best stocks to buy now. The stock is now 20% lower than it was at the beginning of the year.
I think that Mastercard actively stands to benefit from inflation. Higher prices mean bigger payment volumes, which in turn means more revenue for Mastercard.
The biggest risk is that rising interest rates might eventually cause payment volumes to decline as consumers spend less and save more. With inflation still high, though, I think this is some way off.
NextEra
Lastly, I have NextEra Energy (NYSE:NEE) on my list of stocks to buy now. Shares in the company have fallen by 20% this year.
NextEra’s business is protected from competition by regulation. In exchange, the amount that it is allowed to earn in net income is set at a defined level.
This means, however, that the company is allowed to increase its prices in order to offset higher input costs. And its regulatory protection means that there’s no possibility of consumers moving elsewhere.
Once again, the risk is that the stock is expensive. At a forward P/E ratio of around 23, it’s more expensive than other utilities stocks.
As I see it, though, the risk is offset by NextEra’s premium assets. It owns some of the best sites for wind and solar energy generation and I think that these will prove to be worth paying for today.
