Stonemens --
It's a timely question. There's been a lot written about inflation
hedges recently, as the U.S. runs a large budget deficit; the Euro
continues to appreciate against the dollar; and gold has increased
dramatically.
The Wall Street Journal today recommends Euro-based bond funds in an
article "How You Can Play the Falling Dollar."
TheStreet.com does a good inflation analysis, discussing stocks, bonds
and REITs separately in the article below. REITs or Real Estate
Investment Trusts are considered a good inflation hedge thanks to
appreciation of the underlying assets:
TheStreet.com
"Inflation Proof Your Portfolio" (Swanson, May 5, 2001)
http://www.thestreet.com/funds/investing/1433227.html
You'll also note that the article quotes the conventional wisdom that
energy and raw materials stocks do well. Much of the current beliefs
about inflation stems from a seminal article in the Journal of
Business from 1974, "Common Stock Performance and Inflation: an
International Comparison," written by Ben Branch. Though not
available for free on the Internet, it can be purchased (or if your
library has JSTOR access you can get a copy that way):
EconPapers
"Common Stock Performance and Inflation: An International Comparison"
http://econpapers.hhs.se/article/ucpjnlbus/v_3A47_3Ay_3A1974_3Ai_3A1_3Ap_3A48-52.htm
This article from September, 2003 outlines the types of stock
investments that perform well against inflation -- in precious and
non-precious metals; energy; timber and land:
Milwaukee Journal-Sentinel
"Alternative investments to stocks, bonds may be best now for a 401(k)"
(Francis, Sept. 20, 2003)
http://www.jsonline.com/bym/news/sep03/171163.asp
Some recommendations for inflation-sensitive stocks from Scott
Carter's Modern Portfolio Letter. Though it was written two years
ago, some of the recommendations are still timely:
ScottsMPL.net
http://www.scottsmpl.net/step3.htm
The Value Line investment service noted in its Jan. 2, 2004 newsletter
that energy prices have already risen in the past year and that there
is "potential for higher raw material costs arising from an increase
in demand for such materials, including copper, steel, nickel and
coal."
Now for some companies in each of these areas. These companies are
all listed in Value Line's large capitalization stocks. All are
listed on the NYSE, though some are foreign companies traded in
American Depository Receipts (ADRs)
GOLD MINING COMPANIES (SYMBOL)
ASA (ASA)
Barrick Gold (ABX)
Placer-Dome (PDG)
Newmont Mining (NEM)
OTHER METALS
Alcan (AL)
Alcoa (AAA)
Freeport-McMoran (FCX)
Inco Ltd. (N)
Phelps-Dodge (PD)
COAL
Arch Coal (ACI)
Consolidated Energy (CNX)
Peabody Energy (BTU)
PETROLEUM (producing)
Apache (APA)
Burlington Resources (BR)
Forest Oil (FST)
Pogo Producing (PPP)
PETROLEUM (integrated)
Royal Dutch Shell (RD)
Chevron Texaco (CVX)
BP Plc (BP)
Ashland (ASH)
TIMBER (paper & forest products)
Georgia-Pacific (GP)
Pope & Talbot (POP)
Potlatch (PCH)
Weyerhaeuser (WY)
REIT
Duke Realty (DRE)
Federal Realty (FRT)
Health Care Property (HCP)
Hospitality Property (HPT)
Penn REIT (PEI)
Rouse Co. (RSE)
It took a little work to get the right Google search strategy, as
terms like "inflation proof" tend to provide too wide a range of
portfolio suggestions. The best search terms seem to be:
"inflation-sensitive" + stocks
Note too that Ned Davis Research, a Venice, FL market analysis
company, and Ibbotson & Associates of Chicago are two firms that have
done a lot of research on inflation and markets. You may find a search
like the following helpful:
"Ibbotson & Associates" + inflation
One final comment: though bonds move down as inflation rises, there is
one category of U.S. Treasury bond that is inflation-indexed, the
Treasury-Inflation Indexed Securities or TIPS:
U.S. Treasury
TIPS (May 27, 2003)
http://www.publicdebt.treas.gov/sec/seciis.htm
Best regards,
Omnivorous-GA |
