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2 Top Stocks That Can Help Investors Crush Inflation

By Rachel Warren and Brian Withers – Oct 28, 2021 at 5:15AM

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These giant companies have the competitive advantage and consumer base to fight off inflation headwinds.

No one likes inflation. Investors are naturally concerned about safeguarding their portfolio when inflation is high. Rather than waiting for inflation to simmer down before buying more stocks, investing in companies that are primed to withstand the pitfalls of inflation can help to protect your portfolio during these periods and generate sustainable long-term growth. In this segment of Backstage Pass, recorded on Oct. 13, Fool contributors Rachel Warren and Brian Withers discuss two such stocks. 

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Rachel Warren: I'm going to switch to a totally different sector. I'm a healthcare writer here at the Fool so I have to bring up a name that I write about often and that I actually believe is the really interesting stock that is well positioned to continue doing well even in the highly inflationary environment. That would be Johnson & Johnson (JNJ 0.88%) ticker symbol JNJ. I think most of our members will be familiar with this company.

This is definitely one of the household names in the pharmaceutical industry. The company's been in business for around, I think 135 years and counting. One of the things I like about this stock in particular, it's a Dividend King, which means to qualify as a Dividend King a company has to raise its dividend every year for at least 50 years in a row and Johnson & Johnson has done that for 59 years and counting. A stellar track record of dividend increases in a wide range of market and economic environments and it's continued to do those solid dividend increases year after year.

I think another thing that also makes this company particularly resilient in an inflationary environment is just the type of the business that it is. Johnson & Johnson is known for its pharmaceutical products and its consumer health products primarily. It does have a medical devices segment of its business. That area experienced a short-term decline in sales in the earlier days of the pandemic with so many people deferring procedures, but it has bounced back nicely.

But in particular, its pharmaceutical products and its consumer health segment -- these are products that people use and need every day no matter what's happening with the market, the economy, or the state of inflation. You think about some of the products that this company makes, you are thinking of products like Tylenol, Benadryl, Motrin, big-name brands like Listerine and Johnson's. These are brands that everyone has in their house.

You consider the company's pharmaceutical segment which makes life-saving immunology drugs, drugs that treat all types of cardiovascular conditions and so forth. The demand for these isn't going anywhere. The company's most recent earnings report, sales were up 27% year over year. Net earnings up 73% year over year.

It's definitely continuing to grow its balance sheet even though it's been for a while now this challenging inflationary environment. J&J would definitely be a pick that I would put out there for members to consider.

Brian Withers: Rachel, I love that pick because not only it balances some consumer goods that are necessary to keep replenishing in your home, as well as the healthcare side of it. It's a very diverse business and anytime you have some diversity of revenue streams, too, that enables you to be successful in a variety of economic environments or a variety of whatever the world throws at you.

Warren: [laughs] Right.

Withers: So I'm going to kind of piggyback on Trevor's stock pick, PayPal, and bring MercadoLibre (MELI 1.71%) to the table. It isn't a payment so that's one thing, but what got me thinking is MercadoLibre has been dealing with inflation and fluctuating currency over the past 20-plus years, it's been in business. It's got a really sticky business and people come on their e-commerce platform and continue to come back. It's grown considerably across the Latin American region.

You think about payments is becoming a large portion of its business. I want to say a third or 40% of its business is the payments piece, but e-commerce, too. People aren't going to go, well, let me drive to the store because I can get it for a dollar cheaper if I do that. It's all about the convenience and the way it makes it so easy to deal with maybe buying your Johnson & Johnson goods.

Warren: [laughs] Right.

Withers: MercadoLibre is my pick there. I think we had a great trio there. If you picked that basket, I think you will do well for the next five years.

Rachel Warren owns shares of Johnson & Johnson. The Motley Fool owns shares of and recommends MercadoLibre and PayPal Holdings. The Motley Fool recommends Johnson & Johnson and recommends the following options: long January 2022 $75 calls on PayPal Holdings. The Motley Fool has a disclosure policy.

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