Posted July 08, 2021
By Zach Scheidt
This Chart Shows Us Where Inflation Will Hit Next
The official word from the Fed is that inflation is under control...
"Nothing to see here, folks. Move along!"
But you and I know that inflation today is anything but normal.
Just look at the price of lumber at your local Home Depot or Lowes... Or try to buy a car...
Inflation is everywhere! From computers and cell phones to gasoline and groceries. Even your video streaming services are raising prices.
And yet, Fed Chairman Jerome Powell tells us that inflation is transient and isolated to just a few areas affected by the coronavirus crisis.
As more areas of inflation pop up, it's getting harder for me to accept the idea that inflation is only showing up in certain places.
And today, I want to show you the next pocket of inflation and how it will hit American companies.
Fortunately, there are quite a few stocks you can invest in that will benefit from this inflation.
Today, I'll share three plays you can start investing in today to protect your retirement from the next wave of inflation.
Another Area of Inflation Is About to Ignite
Do you remember the widespread forest fires in California over the past few years?
I recall reading stories about how firefighters had largely controlled many of the blazes.
But because conditions were so dry and conducive for fires, new pockets would pop up across the state. Each pocket of fire threatened to spread and become a much more devastating force.
That's exactly how inflation seems to be popping up in our economy!
The Fed thinks that it has the issue of inflation under control.
But thanks to government stimulus, low interest rates, a surging economy and an extremely tight labor force, conditions are perfect for popup inflation blazes in different areas of the market.
Not all Fed members are as comfortable with the situation as Chairman Powel...
Lately, we've been seeing more rhetoric from other members of the Federal Reserve (and other policymakers) who are much more concerned about how inflation could affect our economy, and specifically our retirees.
Now a new area of inflation is about to kick off.
It has to do with a surge in spending coming from businesses across America.
You see, businesses are adapting to the new environment as the economy picks up momentum — even without many of the workers needed to fill jobs.
These businesses are having a tough time finding employees. And yet their customers want to buy more of the products and services they offer.
(This imbalance between high demand and low supply is a huge part of the inflation picture.)
To produce more products and services with fewer employees, businesses are now being forced to upgrade factories, offices and entire business processes.
These investments — known on Wall Street as capital expenditures (or CapEx for short) — are set to pick up in a big way this year.
Take a look at the chart below which shows business plans for CapEx over the next few months.
As you can see, businesses are ready to put a tremendous amount of money to work.
And as these businesses spend money on property, equipment, technology and other projects, some big investment opportunities are setting up!
I want to suggest three stocks for you to buy today. These stocks will naturally benefit from the surge in CapEx spending and the next pocket of inflation set to kick off…
3 Plays to Profit from CapEx Spending
As we start to see businesses spend more to upgrade their factories, technology and efficiency, several great stocks are poised to move higher.
Shares of American Axle and Manufacturing (AXL) caught my eye this week. The company manufactures driveline and metal forming products for sale around the world.
As manufacturing, warehousing and transportation companies upgrade their equipment, AXL should see its sales spike.
Wall Street expects the company to transition from losing money during the coronavirus crisis to generating a profit of $2.16 per share next year.
With shares trading at just over $10, AXL gives us a great value!
We're paying less than 5 times next year's expected earnings to own the stock. But I don't expect AXL to remain this cheap for too long.
Another great CapEx play is Corning Inc. (GLW). The company is known both for its glass used in high-tech display technologies (such as touch-screen computers and kiosks) as well as for fiber optic cable that transmits huge amounts of data at lightning speed.
As retail companies set up more self-serve kiosks for customers, sales of GLW's high-tech glass should increase.
And businesses are working hard to upgrade internet bandwidth to allow employees to dial in from anywhere and get more done in less time.
GLW is expected to earn $2.38 per share next year — well above the $1.31 per share logged over the past 12 months.
And with the stock trading near $40, we're getting a great value for this reliable profit generator as well!
Our third CapEx play for today is Illinois Tool Works (ITW). The company makes industrial products and equipment to serve several key markets.
ITW’s are spread throughout the automotive, food equipment, electronics, welding and construction industries (just to name a few).
So as these businesses spend money to upgrade equipment, factories and technology, ITW will see purchase orders (and profits) surge.
The stock is currently trading near $225 and the company pays a 2% dividend yield.
While ITW is a bit more expensive (compared to earnings) than our other two CapEx picks, the potential for rapid growth helps to offset the higher price for shares.
By investing in these three CapEx plays, you'll put yourself in a position to profit from this new wave of inflation.
That allows you to protect your retirement from the damaging effects of inflation.
It's all part of our goal of helping you build your retirement wealth so you can focus on the things that really matter to you.
Here's to living a Rich Retirement!
Editor, Rich Retirement Letter