4 Stocks That Could Win in an Inflationary Environment

The Federal Reserve no longer thinks that the current elevated inflation levels are "transitory," but it does seem to think that getting inflation back under control won't be too difficult with a planned series of interest rate hikes and the gradual tightening of its loose fiscal policy. In this Fool Live clip, recorded on Jan. 27, Fool.com contributors Matt Frankel, Travis Hoium, Rick Munarriz, and Jose Najarro discuss some stocks that they think are particularly well-positioned to perform well even inflation persists longer than expected. 

Travis Hoium: One stock that you like if we do have high inflation. I'll go first. I've mentioned this one before as an inflation hedge that you might not think about, but -- MGM Resorts (MGM 1.09%). This is a company where most of their expenses happen when you build the resort. That's when your billion-dollar, multibillion-dollar outlay happens. If you raise room rates from an average of $100 a night to $120 a night, a disproportionate amount of that money is going to go in your pocket. So that's a company where, if we get inflation for a sustained period of time -- as long as it doesn't kill the economy, which is a whole other can of worms -- that's a company that I think can do well. Jose, what are you looking at?

Jose Najarro: This one's pretty tricky. Again, if it doesn't kill the economy, I think I would go with something in the advertising market. As one business falls, another one rises, so I think this is a continuation market. To me, it would be either Google (GOOGL -1.22%) (GOOG -1.14%) or Facebook. Just like, let me see... I think it was Rick who mentioned about strong balance sheets, both those companies, especially Meta (META -3.42%), strong balance sheet. I do believe we're going to start to see great acquisitions from them in the future. I do believe this year and maybe next year can be years of acquisition, where some of these companies are going to pick up some smaller companies to improve their overall technology. So for me, Meta and Google will probably make my top list.

Hoium: Rick?

Rick Munarriz: Sure. It's an advertising play like what Jose said, but I'm going to go with Roku (ROKU -1.45%). And Roku, as you know, is one of these stocks that have been beaten down, but they are the industry leader as far as operating systems for smart television. It comes factory installed in 38% of all TVs. It is the leader. It has almost twice the market share of the second most popular platform to stream through different channels and different services, and this is a company ... I mentioned balance sheets earlier. They have $2 billion in cash and $500 million in long-term debt, so it's a good balance, but not necessarily the argument I'm going for here.

I just think like what Jose was saying is that if inflation is rising and people are just like, it's hurting their ability to spend [on] stuff, Roku is a free service. You can go onto Roku. There is even a free channel. You don't have to pay for Netflix (NFLX -8.86%) or any services, you can just go in to stream some of their exclusive content that they bought from Quibi and other things that they are expanding, or just a lot of free content. They have older content. But most importantly, their model is basically all on this platform side, it's all advertising. They make referrals from services and also ad revenue, and I think that with inflation rising, and with products getting more expensive, you're going to have to have marketers justify why their things cost more relative to the other products that cost more, and I think it's going to be a good time for the advertising industry.

Matt Frankel: I'm going to go with one of my boring real estate stocks: AvalonBay Communities (AVB 1.10%). They are a big apartment real estate investment trust. Not only do we have a housing shortage right now, they should generate great returns no matter what inflation is doing. Apartment rents generally keep up with inflation year after year, and unlike a lot of other types of commercial real estate, multifamily has relatively short lease terms. So if inflation is, say, 10% over the next year, they'll have the ability to adjust their rents upward within a year for every unit in their portfolio. So I like that as a great inflation play and a great play on the housing shortage, which is going to take years to correct itself.