Investing

How to stay ahead of inflation and recession

                       

Overview

• Cash strategy
• Stock strategy
• Stocks to short during recession

As I write this in December, 2022, the world is on the cusp of a recession. That’s because, ironically, labor demand is still good, so the Federal Reserve is more confident at raising interest rates to create a recession.

There is continuing supply chain delays, a growing war in Europe.

NOTE: Content here are my personal opinions, and not intended to represent any employer (past or present). “PROTIP:” here highlight information I haven’t seen elsewhere on the internet because it is hard-won, little-know but significant facts based on my personal research and experience.

WARNING: This article is for informational purposes only; it should not be considered financial, tax or legal advice. You can consult a financial professional before making any significant financial decisions.

I am blessed to have a job that pays well enough so that – if I don’t waste too much money – I have some left over to invest for the future.

Cash strategy

Inflation is the invisible tax, which makes a stack of cash melt value because a $100 grocery cart in a year will have less than what can be purchased with a $100 today.

STRATEGY 1 - Live within your means.

STRATEGY 2 - Support your local food bank because of the need.

STRATEGY 3 - Convert cash into tangible assets that retain their value against inflation. Food.

STRATEGY 4 - Buy as many goods as you have money and space to store. For each item you consume, buy the quantity of how much you consume based on its shelf life. Define a way to consume the oldest ones first.

Stock strategy

The advice I’ve received is to “average in” by continuing to buy stock each paycheck (making recurring investments).

Buy dividend-paying stocks that also have some upside potential. Among the list of high-dividend stocks in the S&P 500, listed by 5-year return are:

1. Companies who own land containing precious metals would do better than retailers. As inflation increases, assets retain their value.

   NEM (Newmont Goldcorp) - 46.65% in 5 year returns and 4.47% forward annual dividend.

   Real estate: GLPI (Gaming and Leisure Products) is a real estate operator with “triple-net lease arrangements” with tenants responsible for upkeep, taxes and insurance. Offers a 5.6% dividen yield. It’s

2. People will will continue to need phones.

   Telecom: Verizon

   T (ATT) is now a pure telecom after it divested of Warner Bros. Discovery in 2022. Its divdend yields 5.8%.

3. People will still need electricity even in a downturn.

   NEE (NexEra Energy) - has raised its divident every year for 27 straight years, making it one of the S&P 500 Dividend Aristocrats NEE runs Florida Power & Light (FPL), Florida’s largest electric utility, while NextEra Energy Resources is a major player in wind and solar energy.

   ATO (Atmos Energy) distributes and stores natural gas to more than 3 million distribution customers in more than 1,400 communities across nine states, with a large presence in Texas and Louisiana. 36 straight years of dividend growth.

4. People will continue to need medical supplies.

   WBA (Walgreens) has 4.74% yield. But its stock has been declining the last 5 years.

   ABBV (AbbVie) 3.46% yield and consistent stock rise. Its pharma treats chronic autoimmune diseases in rheumatology, gastroenterology, and dermatology, oncology, including blood cancers, virology, hepatitis C virus (HCV) and human immunodeficiency virus (HIV), neurological disorders, such as Parkinson’s, metabolic, comprising thyroid disease and complications associated with cystic fibrosis, pain associated with endometriosis,

   CAH (Cardinal Health) is a wholesale drug and medical device distributor. Had 36 straight years of dividend growth. 2.54% yield with strong growth in 23.

   WST (West Pharmaceutical Services) has a long history of annual increases in dividends, as it has ample free cash flow from selling injection supplies.

   PG (Proctor & Gamble) has 2.39% yield and growth of 70% in 5 years from Tide, Gillette, Pampers.

   JNJ (Johnson & Johnson) offers a middling 2.53% yield, but steady growth of 26% in 5 years.

   CL (Colgate-Palmolive) has 2.39% yied but more modest growth of 7% past 5 years.

   MDT (Medtronic) medical devices has 3.33% yield, but its stock price has been declining since Sep 21.

   ABT (Abbott) 1.75% yield,

   ROP (Roper Technologies) - is diversified in medical and scientific imaging, RF technology and software, and energy systems and controls. $0.57/year is lower than others, but it has shown both stock and steady dividend growth.

   BDX (Becton Dickinson) 1.41% yield.

5. You still still have to eat. But yields are lower than average.

   PEP (Pepsico) - also makes Frito-Lay, Quaker Foods. 2.43% yield.

   ADM (Archer Daniels Midland) - maker of frankenseeds - has had consistent stock and dividend growth, now at 1.74% yield.

   MCD (McDonalds) has increased dividends for 46 years to current yield of 2.08%. But will it move fast enough for consumers getting away from beef?

   DG (Dollar General) provides low 0.85% yield, but 160% stock growth over 5 years.

6. War profitters: With war raging on, industrials that supply the Military Industrial Complex will get more money from the government. But Dow also has consumer brands which will not fare well during a recession.

   GD (General Dynamics)

   DOW (Dow, Inc) - 3.06% 5 year returns but 5.58% dividend from OXO premium cooking utensils.

   MMM (3M) provides a 4.74% yield, but it stock has declined 50% over 5 years.

7. Cook/fix at home.

   MKC (McCormick) - maker of herbs, spices and other flavorings

   HRL (Hormel Foods) is Spam, Skippy, Dinty Moore. 2.21% dividend and steady growth in stock.

   GPC (Genuine Parts) automotive provides 1.92% yield and 91% growth over 5 years.

8. Additions and escapes: Tobacco stocks are based on addiction.

   BTI (British American) has a 8.9% yield

   PM (Phillip Morris) - 19.42% and 5.00% dividend.

   BF.B (Brown Forman) distributs alcohol - Jack Daniel’s Tennessee whiskey, Finlandia vodka, etc. 39 years of dividend increases.

9. Treatment plants:

   ECL (Ecolab) fluctuates some, but it has 31 consecutive years of dividend increases for it water treatment and other industrial-scale maintenance services for several industries, including food, healthcare, and oil and gas. You’ve seen its products for offshore oil production, electronics polishing, commercial laundries.

   PNR (Pentair) has raised dividends for 46 straight years. It’s

10. ALB (Albemarle) manufactures specialty chemicals such as lithium.

11. LIN (Linde) - the largest producer and distributor of industrial gases in the world (after its merger with Praxair) grew 108% in the last 5 years and generates ample cash flow for a $1.17/share dividend, for a yield of 1.38%.

    APD (Air Products and Chemicals) is back to its core gas business, has a 2.02% dividend yield.

Stocks to short during recession

1. Oil and gas exploration and production companies have done well in 2022 in response to Russian aggression. But will appreciation continue?

PXD (Pioneer Natural Resources Co.) - 39.73% with a 11.50% forward annual dividend.

1. Automotive: F (Ford Motor) - 32.20% and 4.55% dividend

STRATEGY 6 - The network of Ford dealerships are able to support the electrification of transportation of cars and trucks. However, during recessions not as many people visit and buy from car lots.

In 2022 Tesla was the worst performer of the whole market as Elon cashes out over $19 billion of his holdings before taking on Twitter.

1. Home building & Retail:

   GWW (Grainger) 1.15% dividend for handling industrial inventory.

   SHW (Sherwin Williams)

   Home Depot

   Lowe’s

   Furniture - LEG (Leggett & Platt) 4.88% dividend yield, but its stock is declining.

   SWK (Stanley Black & Decker) has 4.01% yield but declining stock.

2. Restaurants (eating out)

   SYY (Sysco) provides food to restaurants is stead at 2.33% yield.

3. Fashion

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