Inflation-fighting stocks

You don’t have to go far to see higher prices in the U.S. Just stop at the gas station or the grocery store. And while the government’s core inflation figure released Thursday is tame, up just 1% in the 12 months through January, the fact that Americans are doling out considerably more for basic energy and food disturbs many stock investors.

Yet stocks can be a strong inflation-fighter. Focusing on companies that can best withstand inflationary pressures could be a wise strategy. “Equities outperform when inflation expectations rise,” Merrill Lynch analysts observed.

Industrials, technology and oil & gas (energy) are the top three contributors to the Dow’s strong gain so far this year, with industrials taking the lead. These cyclical businesses not coincidentally boast low levels of long-term debt and high demand for their products, which allows them formidable pricing power.

“Technology, energy and industrials are now coming into their own,” said Sam Stovall, chief investment strategist at Standard & Poor’s Equity Research Services.

The energy sector is perhaps the inflation hedge that comes closest to gold. Higher oil prices benefit global energy companies such as Chevron Corp. and Exxon Mobil Corp.

http://www.marketwatch.com/story/stocks-that-gold-bugs-can-love-2011-02-18?pagenumber=1