President Donald Trump isn't a fan of Fed Chairman Jerome Powell, despite nominating Powell to replace Janet Yellen in 2017. Trump recently called Powell a "major loser" on a social media post and demanded that he lower interest rates immediately.
On the other hand, Powell doesn't appear to be a fan of Trump's economic policies, either. The Fed chairman recently stated, "Unemployment is likely to go up as the economy slows, in all likelihood, and inflation is likely to go up as tariffs find their way and some part of those tariffs come to be paid by the public."
Powell was essentially warning that Trump's tariffs could cause stagflation -- the combination of slowing economic growth and increasing inflation. Should investors head for the hills if stagflation is indeed on the way? Not necessarily. Here are three stocks to buy and hold if the Fed chairman's prediction is right.
1. Dominion Energy
Americans will still need electricity for their homes and businesses even if tariffs cause an economic slowdown and a spike in inflation. As a result, electric utility stocks are among the best places for investors to park their money during stagflationary periods. I think Dominion Energy (D +2.10%) is one of the top electric utility stocks to own.
NYSE: D
Key Data Points
Dominion Energy is headquartered in Richmond, Virginia. The company provides electricity to customers in its home state, North Carolina, and South Carolina. It has roughly 30.3 gigawatts of electric generating capacity. Dominion operates 10,600 miles of transmission lines that move electricity over long distances at high voltages and 79,700 miles of distribution lines that deliver electricity locally at lower voltages.
Virginia is an especially promising market for one simple reason: It's home to more data centers than anywhere else. Roughly 35% of the world's hyperscale data centers are located in the state. They use a tremendous amount of electricity. Unsurprisingly, Dominion ranks data center expansion as one of its key growth drivers.
This stock will also pay you handsomely to wait until the U.S. economy rebounds and inflation wanes. Dominion Energy's forward dividend yield is 5.13%. With this lofty yield plus expected earnings-per-share (EPS) growth of 5% to 7% annually, I predict Dominion will deliver solid total returns for investors.
2. Kroger
What's something else Americans will continue to do regardless of what happens with the economy? Eat. Granted, they could cut back on how much they eat out. They could also shop for private-label products instead of brand products. Even if consumers reduce spending, grocery giant Kroger (KR +4.76%) is poised to profit.
NYSE: KR
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It's not a coincidence that Kroger's share price has soared year to date while the major indexes have plunged. Investors understand that consumer staples stocks are great safe havens during turbulent markets.
I think Kroger is especially well positioned to navigate the choppy waters. Interim CFO Todd Foley explained in the company's fourth-quarter earnings call in March: "As a domestic retailer, I think we have less exposure to some of the international tariffs that some of our peers will see." Kroger should be able to pass along most price increases that it does experience.
This isn't a stock that will likely beat the market all of the time. But when economic uncertainty increases, Kroger's share price usually does too.
3. Vertex Pharmaceuticals
Imagine you're the parent of a child with cystic fibrosis (CF), a genetic disease that causes breathing problems and other issues. You'd want the best available therapies for your child, stagflation or no stagflation. Vertex Pharmaceuticals (VRTX 1.40%) markets the only approved medications that treat the underlying cause of CF.
NASDAQ: VRTX
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Now imagine you've had surgery and need pain relief. Your alternatives are opioid drugs that are highly addictive, or a safe and effective pain drug that's not an opioid. I suspect most of us would choose the latter. Again, your only choice in this scenario comes from Vertex. Three months ago, the company won U.S. regulatory approval of Journavx, the first new class of pain medication in over 20 years.
It doesn't take much imagination to envision how Vertex's share price will hold up well even if the U.S. economy stumbles and inflation rises. Physicians will keep prescribing Vertex's products, and patients will keep taking them no matter how bleak the economic outlook.
Vertex could also have additional positive catalysts on the way. The company is evaluating four programs in late-stage clinical testing. Good news from any of these clinical trials could make this big biotech stock even more attractive.
