(08/04/22) Which Stocks Beat the Cost of Living Crisis?

With UK inflation at 9% and the US slightly behind at 8%, we're all feeling the effects of the cost of living crisis, states Alpesh Patel, OBE, Member of the UK Dept for International Trade.

However, any significant economic event creates some opportunities. So, which stocks should we consider to beat the rising prices of essential goods?

What Sectors Are Performing Well in 2022

The S&P 500 (SPX) is down 22% in what has been a punishing start to the year for investors. The same issues of inflation, the invasion of Ukraine, and the Fed's hawkish monetary policy are contributing to a bleak outlook.

However, China's reopening, summer travel, and the grim continuation of the Russia/Ukraine situation have recently boosted the commodities sector.

The Invesco DB Commodity Index Tracking Fund (DBC) continues to go from strength to strength. So far this year, it's up almost 30%. The fund provides investors with a straightforward way to invest in oil, gas, gold, corn, and other grains and metals.

Copper to Bounce Back

The price of copper is down around 14% this year. However, some experts believe it can rise significantly. They cite copper use in green construction and the industry's lack of investment in new mines to meet demand.

The ETFs Copper ETC (COPA.L) has dropped sharply this month, but it could be a promising long-term option for patient investors.

The Case for a Commodity Boom

Several factors indicate commodities could keep going up. Inflation, a subdued dollar, alongside weather and environmental concerns, could all create favorable conditions.

As rumors of an upcoming food crisis swirl, the Teucrium Corn ETF (CORN) could be an exciting pick. Ukraine exports around 13% of corn worldwide. Should the war continue, corn prices could rise considerably.

Commodities have a reputation as a good hedge against inflation. With sanctions against Russia set to continue, a commodity gap has opened up, which South America could take advantage of. Some stocks to look out for are PetroRio (PRI03), Ecopetrol SA (EC), and Gerdua (GBB), although each of these stocks has been performing weakly so far this year.

Goldman Sachs has recommended three plays in the Metals and Energy sector. Glencore Internation (GLNCY), Steel Dynamics (STLD), and Diamondback Energy (FANG). Each stock looks pretty cheap, especially if the commodity gap thesis bears out.

Of course, the natural gas space could continue to rise. The Chesapeake Energy Corporation is up 26% this year. and Antero Resources Corporation has increased a staggering 75%. Both stocks have slowed down in recent weeks. They should be monitored for a low entry price.

Batteries are another area that could benefit from the energy crisis. There are several battery ETFs to keep an eye on, with ETFs Battery Tech and Lithium (ACDC.AX) looking good to shake off a rocky year at some point in the future.

The Case Against Commodities

Of course, while commodities could be set for a boom, there are some risks to consider. China is a massive consumer of commodities, especially metals. A global recession or a significant contraction of the Chinese economy could see demand fall alongside prices.

Property has a solid track record for investors looking for a safe haven. However, as Edmund Shing at BNP Paribas points out, alcohol and chocolate always do well in times of financial turmoil. Indeed, many commentators suggest we are nose-diving into a recession.

Conclusion

The market is full of hazards right now. As inflation continues to push the cost of living to new heights, commodities look like a safe haven until things return to normal. For now, it's a stock pickers market. However, as Warren Buffett says, you should never hold money during a war.