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The Sivy Seventy

Inflation hedges

This week's report of strong March retail sales piqued fears of resurgent inflation. And Wednesday's uptick in the consumer price index only intensified that concern.

In fact, core inflation is still running at less than a 3 percent annual rate -- one of the reasons this recovery is likely to continue beyond the current year. But as economic recoveries continue, core inflation generally moves higher. As a result, hedging against inflation will be a crucial part of maintaining your portfolio's purchasing power.

There's a particularly good reason to include oil stocks among your inflation hedges. Not only does continued strife in the Middle East increase the possibility of a disruption in oil supplies, but cheap oil is steadily being used up. That means that over the next decade oil prices should inevitably rise.

In addition to energy stocks, producers of other raw materials are classic hedges against inflation, as are companies that own valuable real estate.

The table below includes two global integrated oils, one exploration and production company, Unocal, two metals producers, and one play on valuable Florida real estate (St. Joe trades on its land holdings, not its P/E).

Since the recovery began to heat up last fall, these stocks are up an average of nearly 30%. But they could climb a lot further if inflation does accelerate and consistently stays above the 3 percent mark.

Last updated Oct 15 16:01
Company (Ticker symbol)	Current share price	52-wk high	52-wk low	Proj. P/E	Proj. 5-year growth	PEG ratio	Comments
ConocoPhillips (COP)	$50.21	$95.96	$45.20	4.5	10%	0.3	Integrated oil
Alcoa (AA)	$11.56	$44.77	$10.51	5.3	2%	0.7	Aluminum producer
Exxon Mobil (XOM)	$64.33	$96.12	$56.51	7.5	7%	0.8	Integrated oil
St. Joe Co (JOE)	$31.05	$46.82	$26.70	74.5	8%	9.3	Florida land developer

Projected P/E based on earnings estimates for this fiscal year. Growth is annual rate based on earnings projections for the next five years.
Source: Thomson/First Call

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