Warren Buffett says these are the best stocks to own when inflation spikes — with high prices no longer ‘transitory,’ it might be time to follow his lead
After months of rising prices, the Fed’s claim that high inflation rates would be “transitory” is looking a bit transitory itself.
“It’s probably a good time to retire that word and try to explain more clearly what we mean,” Fed Chairman Jerome Powell said Tuesday. “I think the risk of higher inflation has increased.”
A hawkish response from the Fed could cause panic in the markets; on Tuesday, the Dow dropped 652 points.
Fortunately, investing icon Warren Buffett has plenty of advice on what to own when consumer prices spike. The Berkshire Hathaway chief managed a stock portfolio through double-digit inflation rates in the 1970s.
In a 1981 letter to shareholders, Buffett highlighted two characteristics that help companies thrive amid high inflation: an ability to increase prices easily and an ability to take on more business without having to spend too much.
In other words, invest in asset-light businesses with pricing power. Here are three Berkshire holdings that fit the description — plus one asset that may always be in demand no matter how high consumer prices climb.
American Express (AXP)
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American Express demonstrated its pricing power quite recently as it raised the annual fee on its Platinum Card from $550 all the way to $695.
The company also stands to directly benefit in an inflationary environment.
American Express makes most of its money through discount fees — merchants are charged a percentage of every Amex card transaction. As the price of goods and services increases, the company gets to take a cut of larger bills.
In fact, business is already booming, as the company’s revenue jumped 25% year-over-year to $10.9 billion in Q3.
American Express is the third-largest holding at Berkshire Hathaway, only behind Apple and Bank of America. Owning 151.6 million shares of AXP, Berkshire’s stake is worth over $23 billion.
Berkshire also owns shares of American…
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