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Inflation - and its implications - have been the story of the market in 2022... and with good reason.
Even after the Federal Reserve aggressively increased the fed funds rate from 0.08% in February to 2.56% in September, inflation is still running hot.
CPI jumped by 8.2% in September versus a year earlier, which was higher than expected. For the month, food at home (grocery prices) jumped 13% versus the same time a year ago. And within that category, certain items have seen prices go through the roof, such as butter and margarine (up 32.2%), eggs (30.5%), and flour (24.2%).
I'm sure you've seen and felt that.
In addition to food, energy prices, which includes gasoline, fuel oil, electricity, and other items, were up 19.8% in September.
It doesn't really matter who you are, what you do for a living, or where you live, food and energy prices affect everyone. That increase (in inflation generally) not only shows up at the cash register at the grocery store or at the pump when you're filling up, it's especially notable in the purchasing power of savings and underperforming investments, which is why it's more important than ever to find ways to profit off the inflation, in order to keep pace and not get left behind.
Over the past three months, I've covered various types of inflation-beating investments, and this week we're going to go straight to the source to talk about commodities.
Raw materials including oil, natural gas, precious metals, copper, iron ore, aluminum, wheat, and corn are natural hedges against inflation because, in most cases, the price of commodities is a key component of the rising costs in the first place.
Since the beginning of the current inflationary cycle, my favorite commodities investment has been Rio Tinto Group (NYSE: RIO).
Headquartered in London, Rio Tinto engages in exploring, mining, and processing mineral resources worldwide. The company offers aluminum, copper, diamonds, gold, borates, titanium dioxide, salt, iron ore, and lithium.
Of all the uses for RIO's commodities, there are two that I'm particularly interested in...
The aluminum, copper, and iron ore that RIO produces are critical components to building cities and infrastructure projects around the world, especially in China.
And the lithium and copper that RIO produces are both must-have inputs to building electric vehicles.
With global demand for copper, iron ore, lithium, and aluminum skyrocketing over the past 18 months, it's no surprise that RIO's financials look fantastic.
From 2020 to 2021, revenue increased 42.33% from $44.61 billion to $63.49 billion.
On the bottom line, net income exploded 115.9% from $9.77 billion to $21.09 billion.
In addition to stellar financials, the company's balance sheet is great, with $13.91 billion in cash versus $12.82 billion in debt.
But here's the best part...
Not only does RIO produce and sell commodities which are critical to the world's growth, it also pays investors a massive 12.95% yield for holding the stock.
That makes RIO one of my favorite inflation-beating investments, hands down.
I'll be back tomorrow morning on Money Morning LIVE's Morning Show
Until then, have a great week.
Shah Gilani
Get the latest trading and investing recommendations straight to your inbox every Monday, Wednesday, and Friday.
About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.