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2 Great Stocks to Buy if You're Worried About Inflation

By Rachel Warren and Toby Bordelon – Updated Dec 7, 2021 at 5:14PM

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A lifestyle retailer and an e-commerce giant are two companies to consider.

Tired of hearing about inflation? While investing during an inflationary period may be challenging, you don't have to look far to find companies that have the pricing power and customer loyalty necessary to thrive in this environment.

In this segment of Backstage Pass, recorded on Nov. 1, Fool contributors Toby Bordelon and Rachel Warren discuss two such stocks.

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Toby Bordelon: I'm going to continue with the tracker theme, I'm going to go with the retail side though instead of the manufacturer side. I like Tractor Supply Company (TSCO 1.13%). They've got a very strong brand. Loyalty seems to have been increasing over the past year or two, especially during the pandemic. They talked about that in the latest earnings report. They talked about they have some supply chain issues and costs increases, but they've been able to mitigate most of that with their own pricing increases. Pushing the pricing increases. I honestly think they can probably go higher than they have, but they are holding a little bit back.

They don't want to press their customers too much and the customers appreciate that. I think everyone understands the scenario and there's not a lot of resistance to the pricing increases that they've been able to push through. They've also shown a lot of discipline on the cost side. They have dealt with some of their impact, their own cost increases by just increasing efficiency, and they talked about that.

Their price increases are not their first option, but it is a level they have used to be able to deal with the increasing costs they're facing. They've done well like the stock is doing well, I like this company going forward. I think this one, maybe not a lot of people are aware of the retailer, but ones who look at, I think they have a lot of potential, still a lot of room to grow here.

Rachel Warren: That's super interesting. It's funny when I was formulating this question for the show, I would not have thought we would have ended up with two essentially tractor stocks, but [laughs] that's great. I think again, it's those companies that are selling those products that people need regardless of what's happening out in the world. I was just looking Tractor Supply Company's shares with the stock are up about 60% over the past year.

That's pretty robust for a company like this that deals in the home improvement space. Super-interesting. I went in a completely different universe for this one, so when was thinking about a company that has a lot of brand loyalty that I think is a good pricing power. I went with it big name here and that is Shopify (SHOP 0.20%)

This is a company that is forecasting sales growth of nearly 400% by the year 2025. That's a mixed, constantly changing retail environment. We know so much of all my retail is overtaking, brick and mortar retail, but it's not quite the same environment we were doing in the early days of the pandemic. It's interesting to see how is Shopify is targeting this growth over the next several years as well.

I think one of the reasons that Shopify has such an ability to roll with the punches in terms of what's happening with inflation is it makes money from the subscriptions that charges to much to use the platform is one of the ways that makes its revenue, as well as other funds processed through the platform. Transaction fees, payment processing fees, and more. Shopify has an incredibly loyal customer base.

Those fees, if it needed to balance things out, it could simply raise those slightly. It has such an incredible loyal customer base that I think that it could adjust it's fees if needed and customers are still going to use the platform because it's known, it's trusted, and its user friendly. I think even in the current environment, where growth is growing in certain aspects of the e-commerce industry as the world reopens, Shopify is still growing along with some of these other big brands in the market.

That company reported its third-quarter earnings results recently. Revenue was up 46% in the third quarter and its subscription solutions revenue was up 37%, and then revenue from merchant solutions. Those fees, I was mentioning earlier up 51% year-over-year. I think it's an interesting company to look out for sure if you are not currently a share owner.

Rachel Warren owns shares of Shopify. Toby Bordelon owns shares of Shopify. The Motley Fool owns shares of and recommends Shopify. The Motley Fool recommends Tractor Supply and recommends the following options: long January 2023 $1,140 calls on Shopify and short January 2023 $1,160 calls on Shopify. The Motley Fool has a disclosure policy.

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