Inflation gradually erodes the buying power of your dollars. The best way to beat creeping inflation is by investing in businesses that are impervious to rising prices. Hence, investors could consider buying fundamentally sound inflation-beating stocks: Walmart Inc. (WMT), Costco Wholesale Corporation (COST), and Johnson & Johnson (JNJ).

The consumer price index, a key inflation gauge, stood at 2.9% in July 2024, still above the Fed’s 2% target rate, according to the U.S. Bureau of Labor Statistics. Amid this high inflation, inflation-hedging strategies try to counter the wealth-eroding effects of inflation by selecting investments that can potentially counter the effects of inflation.

Businesses from defensive sectors like consumer staples and healthcare tend to fare well in inflationary or recessionary environments. This is because there is a steady demand for their products regardless of economic conditions.

Considering these factors, let’s take a look at the fundamentals of the three best inflation-beating stocks.

Walmart Inc. (WMT)

WMT engages in the operation of retail, wholesale, other units, and eCommerce worldwide. It operates through three segments: Walmart U.S.; Walmart International; and Sam’s Club. The company operates supercenters, supermarkets, hypermarkets, warehouse clubs, cash and carry stores, and discount stores under the Walmart and Walmart Neighborhood Market brands.

On August 22, 2024, WMT and Burger King joined forces to introduce an exclusive dining benefit for WMT members, enhancing the value and convenience of the membership program.

WMT members would enjoy 25% off any Burger King digital order daily. Starting in September, members can receive a free flame-grilled Whopper every three months with any purchase.

On June 13, WMT announced the private brand transformation of one of its largest and most well-known fashion brands, No Boundaries. The over $2 billion brand for young adults will bring customers a modern, relevant, and youthful assortment with new fabrication, shapes, and styles, all at the same great prices.

WMT’s annual dividend rate of $0.83 yields 1.09% on the current price level. The company’s dividend payouts have increased at CAGRs of 3.6% and 2.9% over the past three and five years, respectively. WMT has 50 years of consecutive dividend growth under its belt.

WMT’s trailing-12-month ROCE of 18.97% is 74.9% higher than the industry average of 10.85%. Also, the stock’s trailing-12-month ROTC and ROTA of 11.70% and 6.11% are 69.1% and 34% higher than the industry averages of 6.92% and 4.56%, respectively.

For the fiscal second quarter that ended July 31, 2024, WMT’s total revenues increased 4.8% year-over-year to $169.34 billion. Its adjusted operating income grew 7.2% from the year-ago value to $7.94 billion. The company’s consolidated net income attributable to WMT came in at $4.50 billion and $0.56 per common share.

Analysts expect WMT’s revenue for the fiscal quarter (ending October 2024) to increase 4.1% year-over-year to $166.01 billion. Its EPS for the same quarter is expected to grow 3.7% year-over-year to $0.53. Furthermore, WMT surpassed the consensus revenue and EPS in each of the trailing four quarters.

Over the past six months, the stock has gained 27.7%, closing the last trading session at $76.13.

WMT’s POWR Ratings reflect its outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

The stock has an A grade for Stability and a B for Momentum, Sentiment, Growth, and Quality. It is ranked #6 in the 37-stock A-rated Grocery/Big Box Retailers industry.

Beyond what is stated above, we’ve also rated WMT for Value. Get all WMT ratings here.

Costco Wholesale Corporation (COST)

COST, along with its subsidiaries, engages in the operation of membership warehouses internationally.  The company offers branded and private-label products in a range of merchandise categories, warehouse ancillary, and other businesses. It operates through three segments: United States Operations; Canadian Operations; and Other International Operations. 

On August 9, the company paid its shareholders a quarterly dividend of $1.16 per share. With 19 years of consecutive dividend growth, COST pays an annual dividend of $4.64, which translates to a yield of 0.52% at the prevailing price levels. Its four-year average dividend yield is 1.66%. The company’s dividend payments have grown at a CAGR of 23% over the past three years and a 17.9% CAGR over the past five years.

In terms of the trailing-12-month COST’s ROCE and ROTC of 31.64% and 17.72% are 191.7% and 156.2% higher than their respective industry averages of 10.58% and 6.92%. In addition, its trailing-12-month asset turnover ratio of 3.77x compares to the industry average of 0.85x.

For the third quarter of 2024, which ended on May 12, COST’s total revenue increased 9.1% year-over-year to $58.52 billion, while its operating income stood at $2.20 billion, up 30.9% year-over-year.

Its net income for the quarter amounted to $1.68 billion or $3.78 per share, representing an increase of 29% from the same period last year. Also, the company’s net cash flow from operating activities grew 14.1% from the year-ago value to $8.38 billion.

The consensus revenue estimate of $80.20 billion for the fiscal fourth quarter (ending August 2024) represents a 1.6% increase year-over-year. The consensus EPS estimate of $5.07 for the same quarter indicates a 4.4% improvement year-over-year. The company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in each of the trailing four quarters.

Shares of COST have gained 21.9% over the past six months to close the last trading session at $908.90.

COST’s POWR Ratings reflect bright prospects. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.

COST has a B grade for Momentum and Sentiment. It is ranked #26 in the Grocery/Big Box Retailers industry.

In addition to the POWR Ratings highlighted above, one can access COST’s ratings for Growth, Value, Sentiment, and Quality here.

Johnson & Johnson (JNJ)

JNJ researches, develops, manufactures, and sells various products in the healthcare field worldwide. It operates through two segments: Innovative Medicine and MedTech.

On July 30, 2024, JNJ announced that the FDA approved DARZALEX FASPRO in a quadruplet regimen for newly diagnosed, transplant-eligible multiple myeloma patients. The regimen, combining DARZALEX FASPRO with bortezomib, lenalidomide, and dexamethasone, showed a 60% reduction in disease progression or death. The approval should be conducive for the company.

On July 11, 2024, JNJ announced the acquisition of Yellow Jersey Therapeutics for $1.25 billion, gaining the rights to NM26, a Phase 2-ready bispecific antibody for atopic dermatitis. NM26 targets two key pathways in the disease, aiming to enhance treatment options.

JNJ’s forward annual dividend rate of $4.96 yields 3.04% on prevailing prices. Its dividend payouts have increased at a CAGR of 5.5% over the past three years and 5.6% over the past five years. The company has had 61 years of consecutive dividend growth.

In terms of the trailing-12-month EBITDA margin, JNJ’s 35.85% is 509.2% higher than the 5.88% industry average. Likewise, its 69.43% trailing-12-month gross profit margin is 20.9% higher than the 57.41% industry average. Additionally, its 27.90% trailing-12-month EBIT margin is considerably higher than the 2.23% industry average.

During the second quarter that ended June 30, 2024, JNJ’s reported sales increased 4.3% year-over-year to $22.45 billion. Similarly, its gross profit increased 3.5% from the year-ago value to $15.58 billion. Moreover, the company’s adjusted net earnings rose 1.6% and 10.2% from the prior year’s quarter to $6.84 billion and $2.82 per share, respectively.

For the quarter ending September 30, 2024, JNJ’s revenue is expected to increase 3.7% year-over-year to $22.14 billion. Its EPS for the quarter ending December 31, 2024, is expected to increase marginally year-over-year to $2.30. It surpassed consensus EPS estimates in each of the trailing four quarters.

JNJ’s stock has gained 1.4% over the past month to close the last trading session at $162.95.

JNJ’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.

JNJ has a B grade for Value, Stability, and Quality. It is ranked #18 out of 158 stocks in the Medical – Pharmaceuticals industry.

Click here to access the additional JNJ ratings (Growth, Momentum, and Sentiment).

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WMT shares were trading at $76.16 per share on Wednesday afternoon, up $0.03 (+0.04%). Year-to-date, WMT has gained 46.33%, versus a 18.10% rise in the benchmark S&P 500 index during the same period.

About the Author: Nidhi Agarwal

Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities. More...

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