Monday, 19 March 2012

When inflation is looming in the horizon

With inflation looming in the horizon, it is a good time to recall solid investment wisdom from a distant past: a bird in the hand might be worth two devalued birds in the future. Once of the problems associated with inflation is that nobody is able to predict exactly when it is coming. Is it a matter of a few weeks? Are we talking about months? Years maybe?

In any case, shares of good companies listed in the stock market constitute attractive investments at this moment. You can actually have the best of both worlds if you invest in enterprises that offer, at the same time, a high current dividend and reasonable perspectives of profit growth in the future. Sooner or later, better financial results or inflation are bound to drive share prices upwards.

The following are some of my favourite shares. I am looking at these four companies as possible additions to my personal investment portfolio:

1.- GENERAL ELECTRIC (NYSE:GE). Due to the spread of businesses amongst different sectors and countries, GE's overall corporate profits should not suffer badly in a high inflation scenario. In particular, stable international demand should keep GE's power generation and water processing divisions going forward at a good speed. GE's shares can be currently purchased at a price/earnings multiple of 7.5, which makes them reasonably attractive.

2.- MARATHON OIL (NYSE: MRO). This company is a major player in the gas and oil market. It possesses operations in Africa, Asia, Europe, the Middle East and the United States of America. The shares are paying now a dividend around 3%, which is nice to have, and the price/earnings ratio remains at 6.5. A reasonable expectation is that, if inflation drives the oil price upwards, Marathon Oil shares should benefit as well.

3.- CHINA MOBILE (NYSE:CHL). The current yield of these shares is higher than 3%. This Chinese cell phone operator has more than 400 million subscribers to its various services. Even a modest increase in China Mobile's profits in the year 2009 should help maintain the share price at good levels. If the Chinese currency gains value during the next months, that might generate extra profits for international investors.

4.- NOVARTIS (NYSE:NVS). The shares of this Swiss pharmaceutical company are now yielding 4.5% Novartis business is stable, with a good risk spread amongst divisions: vaccines, diagnostics, and pharmaceuticals. Inflation should not have a too negative impact on this company, which possesses subsidiaries and distributors all around the world. Even in periods of economic recession, pharmaceutical companies rarely suffer from major fluctuations in demand.

No investment can offer absolute security and the stock market offers much less than that. Never follow any investment advice blindly and always make your own research before committing your hard-earned money to the stock market. Nevertheless, when the risk of inflation increases with the hour, paralysis might entail the biggest risk of all.


[Image by seligmanwaite under Creative Commons Attribution License. See the license terms under]