Many investors might be reluctant to buy new stocks as rising inflation, higher interest rates, and potential military conflicts weigh down the market. But sitting on too much cash is also a bad idea since inflation will constantly erode the value of the U.S. dollar.
Neither choice seems very appealing right now, but it's generally a better idea to park your cash in a few inflation-resistant stocks that trade at reasonable valuations and pay consistent dividends. These three resilient stocks check all those boxes and are technically screaming buys right now: General Mills (GIS -0.89%), Target (TGT -0.08%), and LVMH (LVMUY 1.16%).
1. General Mills
With such famous food brands as Cheerios, Yoplait, Häagen-Dazs, General Mills is an evergreen defensive stock. Its organic sales increased 4% in fiscal 2020, which ended in May of that year -- just as the initial impact of COVID-19 caused shoppers to stock up on packaged foods -- and its organic sales grew another 4% in fiscal 2021.
For fiscal 2022, General Mills expects its organic sales to increase 4% to 5%. Operating profit and earnings per share (EPS) could dip slightly for the full year as inflation squeezes its margins. But in the company's second-quarter conference call, Jonathon Nudi, its North American retail chief, mainly attributed those headwinds to "short-term supply chain costs" and CEO Jeffrey Harmening expected those disruptions to be "transitory."
For now, General Mills is absorbing some of those costs while passing on others to shoppers through price hikes. That balancing act will throttle its near-term EPS growth, but the company still generates plenty of cash to support its dividend yield of 3%. The stock also looks quite reasonable at 17 times forward earnings -- even after the recent rotation toward value stocks lifted its shares by about 8% over the past three months.
Another solid stock for defensive investors is Target. The giant retail chain currently operates 1,926 stores across the U.S. Amazingly, about 75% of the U.S. population lives within 10 miles of a Target store, and that scale enables it to fulfill many of its online deliveries within the same day.
Target's multi-year transformation -- which included store renovations, expansion of its online store and delivery services, and the introduction of more private-label brands -- widened its moat against Amazon, Walmart, and other large retailers. That transformation also turned it into a top shopping destination throughout the pandemic.
Helped by these changes, Target remains on a growth path. Comparable-store sales rose 19.3% in fiscal 2020 and grew another 14.4% year over year in the first nine months of 2021. For the fourth quarter, the company expects to generate "high single-digit to low double-digit" growth; for the full year, analysts expect revenue and earnings to rise 14% and 41%, respectively.
In the near term, Target's growth will inevitably decelerate against tough year-over-year comparisons in 2022, but the resilience of its business makes it a great stock to buy and hold as myopic investors fret over its near-term slowdown.
The Dividend Aristocrat officially became a Dividend King in 2021 when it raised its dividend for the 50th straight year. The retailer currently pays a yield of 1.7%, and its stock still looks cheap at 16 times forward earnings.
As the largest luxury goods company in the world, LVMH is a promising investment for three simple reasons. First, it's resistant to inflation because it can easily pass on its higher costs to its high-end customers.
Second, its portfolio is broadly diversified across 75 different houses in six distinct sectors. Its fashion and leather goods portfolio -- which includes Louis Vuitton, Christian Dior, Fendi, Loewe, Marc Jacobs, and other high-end brands -- usually does most of the heavy lifting, but it also sells luxury watches, jewelry (including Tiffany & Co.), fragrances, wines, and spirits. It also owns Sephora, DFS, and other high-end brick-and-mortar retailers.
That diversification shields LVMH from any industry-specific downturns. As long as well-heeled customers are willing to spend thousands of dollars on luxury goods and status symbols, it will generate consistent growth.
Lastly, its stock is reasonably valued relative to its growth. LVMH's revenue fell 17% in 2020 as the pandemic disrupted its retail sales, but it jumped 44% in 2021 as businesses reopened. Analysts expect that momentum to continue this year, forecasting revenue and EPS growth of 13% and 10%, respectively.
Based on those estimates, LVMH trades at about 26 times forward earnings. Its rival Hermes, which is growing at a similar rate but relies less on acquisitions, trades at nearly 50 times forward earnings. LVMH also pays a dividend yield of about 1% while Hermes pays a much lower forward yield of 0.4%. Investors would do well to consider the shares.