US is only a few days away from an ‘absolute explosion’ on inflation — here are 3 shockproof sectors to help protect your portfolio

Consumer prices in the United States rose 8.6% in May from a year ago, marking the largest increase since December 1981. But according to GOP pollster and political strategist Frank Luntz, things are about to get worse.

“We’re 13 days away from an absolute explosion in inflation,” Luntz told CNBC last week, referring to the upcoming Fourth of July weekend.

He explains that Independence Day, Thanksgiving and Christmas are three holidays when Americans hit the road and “buy more food than at any other time of the year.”

“They can’t put $40 or $50 in their tank, they actually have to fill it up. And that’s where the explosion hit,” he adds.

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To combat runaway inflation, the Fed announced a 0.75 percentage point rate hike this month, marking its largest interest rate hike since 1994. But it remains to be seen whether that will be enough to calm price levels.

The good news? Even in times of high inflation, a handful of sectors can still make you money.

Utilities

It’s easy to see why utilities generally have the ability to withstand inflation: no matter how expensive things get, people will always need to heat their homes in the winter and turn on the lights at night.

The company also has high barriers to entry.

It is extremely expensive to build the necessary infrastructure to distribute gas, water or electricity. Additionally, the industry is heavily regulated by the government.

As a result, utility companies generally operate as monopolies or oligopolies in their respective regions of operation. And due to the recurring nature of the business, the sector is known for providing reliable dividends to shareholders.

The best part? Utility companies like Consolidated Edison (ED), American Water Works (AWK) and NextEra Energy (NEE) have increased their dividends year after year.

Food

Then we have the food industry, which includes grocery stores, food distribution companies, and food producers.

No matter where we are in the economic cycle, people still need to eat.

Case in point: While the COVID-19 pandemic presented serious challenges for many physical businesses, supermarket giant Kroger (KR) continued to thrive.

Kroger shares climbed 6% in 2022, in stark contrast to the broad market’s double-digit decline.

Then there’s PepsiCo (PEP), which has 23 brands that each generate more than $1 billion in estimated annual retail sales. Sure, inflation could push up costs, but management plans to take “good, big price increases” to counter those pressures.

In the food industry, higher costs are usually passed on to consumers.

Apartments

Real estate is a well-known hedge against inflation. As the price of raw materials and labor rises, new properties cost more to build. And that drives up the price of existing real estate.

But not all properties are the same.

To prepare for uncertainty in this economic climate, look into apartments.

No matter how slow the economy grows, people need a place to live. And with property prices reaching unaffordable levels in many parts of the country, renting has become the only option for many people.

You can still buy a building yourself, find tenants, and collect monthly rent checks. Of course, apartment-focused REITs can do that for you.

For example, Camden Property Trust (CPT) owns, manages, develops and acquires multi-family apartment communities. It has investments in 170 properties containing 58,055 apartments across the United States and offers an annual dividend yield of 2.8%.

Essex Property Trust (ESS) invests in apartments primarily on the west coast. The REIT currently yields 3.4%, supported by its stake in 253 apartment communities – in California and Seattle – totaling around 62,000 units.

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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