Stock market: how to take advantage of an inflationary environment


What crazy days it has been for the stock market!

Source: Sauko Andrei / Shutterstock

On Monday, the broader market slumped as investors panicked over negative news about rising tensions between Russia and Ukraine, protests in Canada, soaring energy prices and the special meeting behind closed doors of the Federal Reserve. the S&P500 and Dow Jones Industrial Average fell more than 1%, although they rebounded in the afternoon.

Then today, shares jumped on reports that tensions were easing between Russia and Ukraine, as Russia announced it was withdrawing some of its troops from the Ukrainian border. Investors cheered the news and the S&P 500 and Dow Jones climbed more than 1% higher.

Today’s rally is particularly interesting because there was also some very bad news this morning. I’m talking about the horrible PPI report. This is what I said to my Growth investor subscribers to my special market podcast this afternoon:

“The PPI report was horrible. I guess the easiest way to describe it is that inflation is structural. Food inflation rose 1.6% from the level of wholesale trade in January. Energy inflation increased by 2.5%. The overall PPI is up 1%. When we exclude food and energy and trade margins, they were still up 0.9%. A lot of the inflation we have now is structural, it’s related to the cost of services, embedded.

This is a problem for the Fed because it will be very difficult for the central bank to unwind this type of inflation. Now, while St. Louis Fed President James Bullard calls for a full 1% interest rate hike by July 1, the fact is the Fed can’t raise rates much. of interest.

The total US federal government debt now exceeds $30 trillion, and the annual interest burden is huge as it exceeds the Department of Defense’s annual budget. Even if the federal government taxed everyone 100%, the federal budget deficit would still be over $10 trillion, so we can’t get out of this tax mess.

That said, I wouldn’t be surprised if the Fed announces that it will raise the discount rate along with the fed funds rate. However, the discount rate is more of an “internal bank” issue, so it’s not something we really need to worry about.

Ultimately, I expect the central bank to stay the course. And I said exactly that in my Growth investor Special Market Podcast from earlier today:

“They [the Federal Reserve] don’t want to change what they said before. Right now, they are in the process of unwinding their quantitative easing and will raise rates at the end of March. Would it be 50 basis points? May be. Some are asking for five to seven rate increases, but the best case scenario is three to four. »

So what should we remember as investors?

First, I would expect more relief rallies on any news related to Russia and Ukraine moving closer to a resolution. The reality is that Wall Street is easily distracted by world political events. In turn, the stock market feels the effects.

The stock market: a hedge against inflation

Second, the stock market is a natural hedge against inflation. The fact remains that equities are an excellent hedge against inflation. Shares of companies that can sustain strong sales and earnings growth as they raise prices to offset inflationary pressures are particularly attractive at this time, i.e. fundamentally superior companies.

Example : Fortinet (NASDAQ:FTNT).

Fortinet operates in the lucrative cybersecurity industry, as it provides unified security solutions that can be deployed across digital networks to protect users from malware, spam, and network intrusions.

Cybersecurity has come to the fore over the past two years as data breaches have escalated with more and more people working remotely. In fact, the IBM Cost of a Data Breach Report 2021 found that the average cost of a data breach was between $3.86 million and $4.24 million on an annualized basis in 2021. And the average cost was $1.07 million higher when working remotely.

Needless to say, Fortinet’s services and products have been in high demand as individuals and businesses improve their security efforts. And that request added nicely to Fortinet’s top and bottom bottom line.

On February 3, Fortinet reported better-than-expected results for its fourth quarter and fiscal 2021. estimates of $960.46 million. Product revenue accounted for $378.9 million, while service revenue accounted for $584.7 million. The company noted that total billings increased by $1.31 billion and bookings reached $1.43 billion in the fourth quarter.

Fourth quarter profit increased 17.3% year over year to $205.8 million, or $1.23 per share, from $175.5 million, or $1.06 per share, in the fourth quarter of 2020. Analysts had expected earnings of $1.15 per share, so Fortinet issued a 7% earnings surprise.

For fiscal year 2021, Fortinet had total revenue of $3.34 billion and earnings of $666 million, or $3.99 per share. This represented annual revenue growth of 28.8% and annual profit growth of 18.4%. Those results also topped earnings estimates of $3.91 per share on $3.34 billion in revenue.

Fortinet noted that it has achieved revenue growth of 20% or more for three consecutive years, and company management said, “Given our strong pipeline and strong business momentum, we expect several more years of solid growth as Fortinet is well positioned to respond to our $174 billion market opportunity.

So, looking forward to fiscal 2022, Fortinet expects revenue of between $4.275 billion and $4.325 billion and earnings per share of between $4.85 and $5.00. This outlook is well above analysts’ current expectations for 2022.

Shares of FTNT rallied well ahead of its earnings release and jumped 6% following its strong results. And this is just one example. You may recall that we discussed other stocks that made similar moves after their earnings slumped. Market360 articles last week, like The Walt Disney Co. (NYSE:SAY), Procter & Gamble (NYSE:PG) and Regional management company (NYSE:RM) – Just to name a few. (If you haven’t read them yet, you can catch up here.)

We are now about 75% into the fourth quarter earnings season, but there are still plenty of good earnings releases in the pipeline, especially in Growth investor. i have 11 Growth investor The companies on the buy list are reporting this week, and I expect them to report wave after wave of strong results and attract investors’ attention.

Bottom line: revenue works.

To make sure you’re on the safe side of this earnings season, I encourage you to register Growth investor today. My shopping lists are full of fundamentally superior actions who are poised to become stock market leaders in the coming months.

For all the details, click here.



Louis Navellier

PS There’s a big gap opening up in America – and investing in my Growth investor actions will help put you on the right side. On one side is a new aristocracy that is accumulating more wealth faster than any other group in American history. For people like me, the one percentlife has never been better, more prosperous.

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Few Americans even know this is all happening. I never saw anyone on my side of the chasm stepping up to explain one or the other of these things.

That’s why I edited this video. In it, I’ll lay out exactly what’s going on, including several key steps every American should be taking right now.

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It’s free to watch, and in doing so, I know you’ll be ahead of everyone else who’s struggling to understand What’s really going on.

Publisher hereby declares that as of the date of this e-mail, Publisher owns, directly or indirectly, the following securities which are the subject of commentary, analysis, opinion, advice or recommendations in, or which are otherwise mentioned in, the dissertation below:

Walt Disney Co. (SAY), Fortinet Inc. (FTNT)


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