When higher inflation is structurally baked into the pipeline, a standard cash-heavy position becomes a guaranteed wealth destroyer. That’s why I’ve been preaching the value of Heavy Assets, Low Obsolescence (HALO) stocks for some time. Consider the State Street Energy Select Sector SPDR ETF (XLE), suggests Sean Brodrick, editor at Weiss Ratings Daily.
I like keeping a large amount of cash in the bank because I’m an old grump. But that’s a stupid thing to do now. Instead, I’m looking for assets with intrinsic value, pricing power, and linkage to rising prices.
Say hello to HALO. Companies with capital-intensive, physical assets that cannot be easily replaced — AND that can pass 100% of their rising input costs on to consumers — can do very well. I’m talking about energy and critical materials, precious metals, utilities, and infrastructure.
Let’s look at the XLE. It’s stuffed with US oil and gas companies across exploration, production, refining, pipelines, and oilfield services. Its top three holdings are Exxon Mobil Corp. (XOM), Chevron Corp. (CVX), and ConocoPhillips (COP).
The XLE carries a very low expense ratio of 0.08% and offers a dividend yield in the 2.5% to 2.7% range. You can see that the ETF is trying to break one level of overhead resistance. Then it needs to break out through the high it set right after the war with Iran started.
I believe it’s going to do that, then run to $105…and maybe higher. Even if peace breaks out tomorrow in the Middle East, a lot of infrastructure got blown up around the Persian Gulf. Oil prices will probably be feeling upward pressure all year. That’s sure to stoke inflation…inflation that is already working its way through the system like a pig through a python.
Recommended Action: Buy XLE.
