By JACK HOUGH
Stocks offer natural protection> against inflation. To paraphrase Warren Buffett, the best thing to own if you're worried about your currency's value is talent, because the resources of society flow toward talented people no matter the medium of exchange, and buying shares of good companies is merely the most convenient way to invest in other people's talent.
Among companies turning worker talent into investor profits, some are better positioned than others for inflation, of course. Ideal candidates share at least three attributes, beyond the usual value signals. First, they sell something that tends to remain in demand or even become more popular when costs broadly rise. No jet ski makers, in other words. Second, their profit margins can sustain a rise in raw materials costs. Dairy farmers and most grocers are out. Third, they aren't one-way bets on inflation that might plunge in value if prices remain tame and the currency strong. That rules out gold miners.
This last point might seem heresy to committed doomsayers, but consumer costs are up just 1.5% over the past year and there are smart arguments to be made both for and against the likelihood of prices rising much faster in coming years. Absolute certainty of the future is best left to the television pundits who are paid to feign it. Prudent investors will hedge against the possibility of being wrong. Below are three companies with stable profits and decent dividends, along with a history of beating inflation and the ability to prosper without it.
Archer Daniels Midland
Consumer costs soared throughout most of the 1970s, rising at a yearly pace of more than 10% in the middle of the decade. A gold miner might be expected to have outperformed a grain processor under those conditions, but between 1971 and 1980, $100 invested in Archer Daniels Midland (ADM)
Coal-fired plants produce about half the world's electricity and more than 70% of it in China. The U.S. Energy Information Administration reckons worldwide coal demand for power and industrial uses will rise 49% through 2035, with China eclipsing U.S. demand by 2020, despite steady growth in its energy from renewable sources like wind and moving water. The U.S. coal industry "appears to be moving towards becoming a permanent, not swing supplier to global markets," wrote Jefferies & Company analyst Michael Dudas in a Feb. 7 note to clients. Dudas has a "buy" recommendation on shares of Arch Coal (ACI),
Philip Morris International
New York City smokers expressed outrage in 2002, when lighting up was banned in bars and restaurants. Perhaps they were distracted by deep snow on Feb. 2, but public outcry seemed muted when the City Council extended to public spaces including Central Park and Times Square. Tobacco is anything but a growth industry in the U.S. However, Philip Morris International (PM),