3 Smart Stocks to Hedge Against Inflation

3 Smart Stocks to Hedge Against Inflation

As far as inflation is concerned, the pandemic may have created the perfect storm. Since March 2020, U.S. lawmakers and the Federal Reserve have injected trillions of dollars into the economy, hoping to avoid a prolonged recession. At the same time, business closures led to bottlenecks in global supply chains, and labor shortages have made the problem worse. Collectively, these variables have created an environment that could drive prices higher across numerous industries.

In this Backstage Pass video, recorded on Oct. 20 , Motley Fool contributors Trevor Jennewine, Rachel Warren, and Jason Hall highlight why MercadoLibre ( NASDAQ:MELI ), Pfizer ( NYSE:PFE ), and Trex ( NYSE:TREX ) look like smart investments given the current macroeconomic environment. 10 stocks we like better than Trex Company, Inc.

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Jason Hall: In this case, let’s talk about stocks that we like, that we think are inflation-proof. Trevor.

Trevor Jennewine: I’m going to go with MercadoLibre. I think any business that’s making money by taking a percentage of payment volume that’s moving through its platform is somewhat resistant to inflation, just because if prices of goods and services are going up then they are going to be taking a higher percentage of those goods and services. Just by the way, they monetize their business.

Hall: It’s a tollbooth business with gigantic operating leverage.

Jennewine: Yep. I think on top of that, they also have a very strong competitive position. They’re the largest e-commerce and digital payments platform in Latin America by multiple times. If you look at the traffic coming to MercadoLibre’s marketplace, I think it’s almost four times higher than the next-closest competitor, which I believe is Amazon .

If you’re a merchant or a consumer in that region, where are you going to list your products? You’re going to go to the place that has more traffic. If that’s where merchants are going, then it’s going to have a greater selection. And if it has a greater selection, that’s where consumers are going to go, so you get that powerful flywheel that should help the company maintain that advantage in the coming years.

Then on top of that, they also have a whole ecosystem of these value-added services like logistics, fulfillment, financing. They provide digital advertising services that really just help merchants — it’s an end-to-end solution for commerce. They give merchants all the tools they need to start and then grow their business, including the payment processing platform, Mercado Pago. I think the company has all of that going for it. That’s why I’d say the stock is somewhat inflation-resistant as far as tech stocks go.

Hall: There’s also a decent chance that even if somebody is buying something off of the platform, it’s still going through Mercado Pago. It’s incredible. It’s really just such an amazing business. I think you’re probably right. Rachel if you’re looking for inflation resistance, there’s not better places to fish in than healthcare, right?

Warren: Right. I know this is why I love talking about healthcare stocks more than ever right now because I feel like this is an industry in particular that’s just very resilient in a wide range of economic environments.

Obviously there’s a lot of great companies I could pick but just off the top of my head, one of my favorite stocks that I think is very resistant to inflation is Pfizer.

I write about this company a lot. Obviously it’s had this massive commercial success for the vaccine it developed with BioNTech for COVID-19, but it also has a really impressive product portfolio and a very strong product pipeline that spans so many different disease areas and faces really consistent consumer demand. These are the products that people rely on and need daily. In some cases, these are very much lifesaving medicines. Even just Pfizer’s consumer healthcare products, one of the things I look for when I’m looking for companies that I think is going to be really robust in an inflationary environment, is looking for a company that either has significant pricing power and, […]

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