Inflation Fears Didn't Hold These 4 Stock Winners Back

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Wednesday was a positive day for the stock market, although major market benchmarks remain well below their record highs from last month. The biggest gains on a percentage basis went to the S&P 500 (SNPINDEX:^GSPC), but the Dow Jones Industrial Average (DJINDICES:^DJI) and Nasdaq Composite (NASDAQINDEX:^IXIC) also managed to gain ground as investors seemed ready to recover from a tough first week of 2022.

Index

Daily Percentage Change

Daily Point Change

Dow

+0.11%

+38

S&P 500

+0.28%

+13

Nasdaq

+0.23%

+35

Data source: Yahoo! Finance.

There was considerable nervousness coming into Wednesday’s trading session that the latest report on inflation from the Bureau of Labor Statistics might lead to dramatic action from the Federal Reserve. Although most headlines trumpeted big gains in the Consumer Price Index (CPI) from last year’s levels, the monthly rise was somewhat more modest. Moreover, many stocks actually seemed to thrive in the environment. Below, you’ll learn more about four winners on Wednesday, but first, let’s turn to the latest inflation report.

Image source: Getty Images.

Is inflation peaking?

The news on the CPI was mixed. Prices rose 0.5% in December, which was a reduced rate compared to the 0.8% rise in November. However, the year-over-year change in the CPI climbed to 7%, which was the highest since the early 1980s.

On a positive note, energy prices finally eased lower after a long string of big increases. Yet even there, longer-term gains were excessive, with gasoline jumping nearly 50% in just the past year.

More troublingly, many categories continued to see big jumps. A 3.5% rise in used vehicle prices, a 1.7% jump in apparel prices, and a 1% price increase for new vehicles extended trends that have gone on for months now. 

Materials, EV stocks perform well

Yet inflation concerns didn’t stop stocks from rising, and some sectors saw particularly good results. One was the basic materials industry, where both Freeport-McMoRan (NYSE:FCX) and ArcelorMittal (NYSE:MT) gained more than 5% on the day.

Freeport benefited from higher copper prices, leading much of the mining complex higher. Copper has often served as a barometer of future economic activity because of its extensive use in building construction and infrastructure projects, and investors appear more optimistic that the global economy can recover from the COVID-19 pandemic in 2022 and push higher. Similar trends should help steelmaker ArcelorMittal, whose stock climbed to levels it hasn’t seen in nearly eight years.

Meanwhile, electric vehicle stocks also fared well, particular those based in China. Nio (NYSE:NIO) rose almost 6%, buoyed by positive comments from company officials about its pricing power. In an environment with almost unquenchable demand, Nio has been able to sustain high prices even as production of electric vehicles for the Chinese market has boomed. Analysts at Macquarie followed suit by starting coverage of Nio with an outperform rating and a price target of $37.70 per share.

Similarly, XPeng (NYSE:XPEV) also picked up 6%. Macquarie was similarly bullish on the rival Chinese EV producer, rating it outperform as well and setting a price target significantly higher than the stock’s current level. Both XPeng and Nio had extremely good years in 2021 from a business standpoint, but their stock performance has been somewhat muted.

Keep looking for winners

Even when conditions are tough, you can still find good stocks. Indeed, both the basic materials and the electric vehicle industries look like good plays even if inflation comes under control in 2022.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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