10 stocks for falling prices
Flat or dropping prices might sound good, but deflation is dangerous. Here are 10 stocks Jim Jubak thinks could still thrive in that scenario.
Ever since the Federal Reserve began pumping trillions of dollars into the economy in the wake of the financial crisis -- not to mention the central banks of Japan and Europe -- investors have been on the lookout for runaway inflation. It was all but guaranteed to happen, and a driving force behind gold's huge 2009-2012 rally.
"By this point in the recovery from the crisis," Jim Jubak says, "global economies were supposed to be running toward dangerous inflation." But overall inflation in the world's developed economies stands at just 0.4%. It's 1.1% in the U.S.
Inflation still poses a real danger, Jubak says. "At some point, all that monetary stimulus will result in across-the-board asset-price inflation . . . and at some point all that central bank cash will start pushing up prices in general," he says. "But we're not at that 'some point' yet."
In fact, Jubak argues, a more likely short-term scenario may be a deflationary environment -- at least in some sectors.
Deflation makes it difficult for companies to raise prices, even if they're forced to pay more for raw materials. They also face "pressure to lower prices because they do business in sectors with excess capacity, where competitors are more than willing to cut prices to keep their factories running," Jubak says.
But there are a few companies Jubak thinks could weather that scenario quite well. Cummins (CMI), whose new diesel engines are so much more fuel efficient than those built even a few years ago, could withstand deflationary price pressures. So could food producers like Mexico's Industrias Bachoco (IBA) and Brazil's BRF (BRFS), who don't have to worry about global overcapacity as the population continues to swell. "I can't think of a lot of sectors safe from deflation, but food is definitely one," says Jubak. Other picks range from the energy industry to online and discount retailers.
More from Top Stocks
Copyright © 2014 Microsoft. All rights reserved.
As the market wades through what many people hope is a sixth bull year, some have grown nervous about how long the run can go.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.