Inflation rates recently hit their highest levels since the 1990s, cautions Ian Wyatt, a leading growth stock expert and editor of Million Dollar Portfolio.
That’s thanks to the generous government stimulus checks to most Americans, enhanced unemployment benefits that recently ended, and the massive efforts of the Federal Reserve to prop up the banking system.
Time will tell if that’s the start of a lower trend or not. Either way, the economy will take some time to heal from the pandemic and the stimulus money spent to keep things going last year.
For the most part, our portfolio is in great shape to handle inflation — including our position in Sprott (SII), which we bought last August. It looks like the perfect play for the one-two punch of higher inflation and ongoing supply chain problems right now.
Based out of Canada, the company is an asset management holding company. It offers asset and portfolio management, wealth management, and other services. You may have even heard of one of their funds.
The Sprott brand is best known for its role in helping investors in the commodity space. It’s built a number of funds from overall commodity funds, to specific commodity funds like one in uranium, a commodity that’s been trending higher lately.
Higher asset prices and higher inflation tend to mean more overall fees. That should be good for the business. While shares are essentially flat over the past year, revenues are up 17%.
The past year has been tough, as that’s about how long it’s been since most commodity prices have stopped trending too much higher overall. Rather, the commodity market has become a bit of a game of whack-a-mole. Lumber first rose at the start of the year, before coming back down. Then coffee was a top performer. Oil prices have started to move higher in recent weeks as well.
But if headline inflation rates keep showing numbers on a 5% annualized basis, chances are all commodities will keep trending higher. So expect good times for Sprott in the months and even years ahead.
While asset management may not sound exciting as an investment, Sprott has the potential to be exciting if commodities really take off. Until then, we get a great management brand at a decent valuation, and with a modest 2.6% dividend yield at today’s prices.
Historically, this is a weak time of year for other stocks. We may get some bargains in other names in our portfolio in the weeks ahead. Or we may find a new bargain amid the market’s first selloff in months (whenever we get it). Until then, the best strategy is to keep adding to the best ideas already in our portfolio.
Recommended Action: Keep accumulating shares of Sprott at current prices to hedge against rising commodity prices and ongoing supply chain issues.
