Inflation Busters: 3 Hidden Stock Gems That Thrive in a High-Cost World

Stocks to buy

When investors stopped thinking about stocks to buy for high inflation, the U.K.’s Office of National Statistics (ONS) delivered a jolt to the system. 

On January 17, the ONS reported that the Consumer Prices Index (CPI) rose by 0.4% in December. This pushed the annual inflation rate to 4.0% from 3.9% in November. Increasing prices for alcohol and tobacco were the culprits last month. 

“The prices of goods leaving factories are little changed over the last few months, while the costs of raw materials remain lower than a year ago,” Forbes reported comments from the ONS. 

In Canada, Statistics Canada reported that the country’s annual inflation rate jumped up to 3.4% in December, 30 basis points higher than in November. In the U.S., the CPI rose by 0.3% in December to 3.4%, suggesting that cuts in interest rates might not come as soon as investors hoped. 

Should prices remain elevated for the foreseeable future, it’s not too late to buy these three stocks for high inflation. All three are in the top 10 holdings in the Horizon Kinetics Inflation Beneficiaries ETF (NYSEARCA:INFL)

PrairieSky Royalty (PREKF)

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PrairieSky Royalty (OTCMKTS:PREKF) is the top holding, weighted at 5.71%. 

The Calgary-based PrarieSky Royalty “is a pure-play royalty company, generating royalty revenues as petroleum and natural gas are produced from our 18.3 million acres of royalty properties spanning Western Canada from Northeast British Columbia to Western Manitoba,” states the company website.

The company is a smaller version of the Texas Pacific Land Corp. (NYSE:TPL), which makes money off royalties from oil and gas produced on its land in West Texas. It is the actively managed ETF’s third-largest holding with a 5.34% weighting.    

PrairieSky went public in May 2014. When it went public, it had 40,000 acres per million shares of its stock outstanding. Today, it’s almost doubled, up 89%. At present, there are 246 wells producing oil on its land. Approximately 50% of the revenue generated is by private operators. Its quarterly dividend yields a reasonable 4.4%.  

Intercontinental Exchange (ICE)

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On the U.S. side of the 49th parallel, Intercontinental Exchange (NYSE:ICE) is the fifth-largest holding at 4.61%.

ICE is best known for owning the New York Stock Exchange, which it acquired in 2013. However, its Exchange segment owns 13 regulated exchanges and six clearing houses in the U.S., UK, and several other countries. 

It has two other operating segments – Fixed Income and Data Services and Mortgage Technology. In the nine months ended Sept. 30, 2023, Exchanges accounted for 57% of its $5.79 billion in revenue, followed by Fixed Income and Data Services (29%), and Mortgage Technology (14%). 

In September 2023, the company completed its acquisition of Black Knight, a software and data analytics provider for the mortgage industry. While the Exchanges segment is the most significant revenue contributor, the other two generate more recurring revenue as a percentage of their segment’s revenue, which is the best kind. 

Analysts like its stock. Of the 20 that cover it, 16 rate it either overweight or buy, with a target price of $144.50, 15% higher than its current trading spot. 

Archer Daniels Midland (ADM)

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Archer Daniels Midland (NYSE:ADM) is the ETF’s sixth-largest holding at 4.22%. 

To understand what the company does, one needs to go back and look at its history since its founding by George A. Archer and John W. Daniels in 1902. The duo started with a linseed crushing business. It created linseed oil for industrial applications such as paints, sealants, and adhesives. 

By 1924, it was a public company listed on the NYSE. Over the next hundred years, it continued to add products and services such as grain and soybean processing as its competencies and expertise increased. 

Today, it has three operating segments: Ag Services and Oilseeds (77% of revenue), Carbohydrate Solutions (14%), and Nutrition (9%). Despite the two latter segments only generating 23% of the revenue, they account for 33% of the operating products. 

In the Nutrition segment, one of its products is Proud Paws, a line of dry cat and dog food. It’s got its hands into virtually everything to do with food ingredients. 

One reason that’s probably kept a lot of investors away from ADM is its low operating margins. In Q3 2023, they were less than 7%. Apple’s (NASDAQ:AAPL) is around 30%, more than 4x ADM’s.

Despite the thin margins, its five-year annualized total return, up 12.04%, is reasonable.

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.

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