We saw the news hit the tape on Friday, the highest consumer price index reading in almost 40 years. Despite the Biden administration’s disclaimer that the data was “backward looking,” which indeed it was, there isn’t a soul on Wall Street or in the Federal Reserve that still feels that the current inflation is “transitory.”
If any data set can stir arguments among economists, it is probably consumer and producer price index numbers, and with good reason. Rising consumer and producer prices can signal the start of an inflationary period for an economy. Even moderate inflation can rapidly erode purchasing power and can create uncertainty as businesses have more difficulty estimating future costs.
However, some companies are almost impervious to inflation. Hard assets, commodities, real estate, utilities and other areas often can perform well in an inflationary and a rising interest rate environment. We screened the Goldman Sachs Americas Conviction List of top stock picks looking for the kind of companies that can fare well in 2022 and found five that pay reliable dividends and look like very solid ideas. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
Alcoa
This company could be a solid play for more conservative investors looking to the mining sector. Alcoa Corp. (NYSE: AA) produces and sells bauxite, alumina and aluminum products. The company offers aluminum sheets for the production of cans for beverage and food.
Alcoa also engages in the aluminum smelting, casting and rolling businesses, as well as generation and sale of renewable energy and provision of ancillary services.
The analysts said this recently about inflation related issues at the company.
While we note meaningful investor focus on cost inflationary pressures in Europe, we note that the leverage to higher aluminum and alumina prices should outweigh the impact of higher power prices. We believe that the ~16% underperformance in shares relative to peer, Norsk Hydro is unwarranted, and with the energy cost impact now better understood, see runway for the shares to re-rate higher
Shareholders receive just a 0.83% dividend. The Goldman Sachs price target for Alcoa stock is $63, while the consensus target is $59.61. The shares closed on Friday at $48.80.
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