Six stocks to play inflation defense and the AI boom at the same time

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Today’s issue in preview:

• Six stocks to play inflation defense and the AI boom at the same time

• A major reason why you should be bullish on stocks right now

• This stock is the best way to invest in AI and robotics at the same time

• Learn our Top Themes to buy now

Six stocks to play inflation defense and the AI boom at the same time

Credit: Ron and Patty Thomas

It’s ugly. It’s volatile.

But it’s a bull market in U.S. natural gas stocks.

And if you’d like to make money from the AI boom or protect your financial life from the harmful effects of inflation, or both, you should look into what’s happening and why.

Over the past six months, I’ve written a special series of research notes on publicly traded assets such as timberland giant Weyerhaeuser (WY) and construction aggregates firm Vulcan Materials (VMC) that can add a robust “inflation defense” component to your financial life.

You probably know why being vigilant against inflation is important: governments in most Western nations have promised far too many things to far too many people. They are spending far more on taxpayer benefits and wars than they collect in tax revenues.

The related debts and obligations governments have taken on cannot possibly be paid back with sound money. They can only be paid back with debased, devalued money… much of which is created out of thin air. This is driving inflation and significant currency debasement.

Measured against a basket of commonly traded raw materials, the dollar has lost 55% of its value over the past seven years. That’s an annualized loss of purchasing power of about 10%.

Prices are going up because the value of our money is going down.

Everyone should consider which assets can help them preserve their wealth during periods of inflation.

When I provide people recommendations on how to approach this challenge, I urge them to keep my number one rule in mind: You want to own in-demand, useful assets that cannot be easily replaced or replicated. You want to own businesses and real estate properties that produce in-demand, scarce resources, products, and services.

This group of assets includes quality farmland, beachfront real estate, timberland, great businesses, and oil and gas pipelines.

When a very difficult or impossible-to-replicate business or piece of real estate produces in-demand, scarce resources, products, and services, it tends to hold its value no matter what the dollar is doing. Its price will constantly “recalibrate” to accommodate an increase in currency units.

It’s like the difference between slicing a pizza into 6 or 8 pieces. The number of slices changed, but the amount of pizza is the same.

In addition to the assets listed above, I’ve added “enormous proven reserves of in-demand natural gas” to our list of inflation defense vehicles this year.

Avid Money & Megatrends readers know that AI Power Consumption and the Power Grid Upgrade are two of our highest-conviction long-term themes.

Given AI’s enormous promise, big tech firms like Meta (META), Amazon (AMZN), and Microsoft (MSFT) are racing to build the world’s best AI models and infrastructure. They’ve already spent more than a trillion dollars. This year, they are on pace to spend over $700 billion on AI infrastructure, with more than $3 trillion expected to follow.

All that AI infrastructure is poised to consume vast amounts of electricity. S&P Global estimates that global electricity demand will increase by nearly 50% by 2040.

I’ve frequently mentioned that AI’s growing power demands are a major driver of natural gas demand, as it is the preferred clean-burning fuel for power plants that support AI data centers. Growing demand for U.S. natural gas from Europe and Asia is another powerful demand driver.

A compelling way to invest in this theme – and fortify your portfolio against inflation to boot – is to own a basket of America’s leading natural gas producers. This group includes EQT (EQT), Expand Energy (EXE), Antero Resources (AR), Range Resources (RRC), CNX Resources (CNX), and Comstock Resources (CRK).

Buying a basket of these firms makes you the owner of a vast and diversified collection of the highest-quality natural gas fields in the United States.

As you can see in the four-year chart below for natural gas giant Range Resources, the stock has formed a series of higher highs and higher lows since 2023. (Charts of fellow giants EQT and EXE are very similar.) A series of higher highs and higher lows is one of the quintessential features of a long-term bull market.

Mind you, this series of higher highs and higher lows is extremely volatile. You could even call it ugly. Range and its fellow producers have volatile stocks because the natural gas market itself is volatile. Natural gas prices are subject to huge swings.

Natural gas demand is greatly influenced by weather, while supply depends on infrastructure, production capacity, and storage availability. This creates a volatile price environment where sudden changes in the weather can produce huge swings in the natural gas price.

It may be volatile, and it may be ugly, but it’s still a series of higher highs and higher lows for U.S. natural gas producers. If you have a strong stomach and a desire to invest in the AI boom while playing inflation defense, consider adding this theme to your portfolio.

A major reason why you should be bullish on stocks right now

Credit: Art Wager

This week, the stock market sent us a message loud and clear: It’s a bull market in megabanks.

And that’s good for the value of your 401(k).

This week, JPMorgan Chase (JPM), U.S. Bancorp (USB), and Bank of America (BAC) reached new all-time highs. Japanese banking giant Mitsubishi UFJ (MUFG) reached a new high. Spanish banking giants Banco Bilbao Vizcaya Argentaria (BBVA) and Banco Santander (SAN) reached new all-time highs. Canadian banking giants Bank of Montreal (BMO) and Bank of Nova Scotia (BNS) reached new all-time highs.

You know JP Morgan Chase and Bank of America.

You may not know the others, but they are massive, consequential parts of the global financial machine. And they are all registering new highs. This is a big deal.

As a rule, I avoid investing in individual banking stocks. Since I started trading stocks in 1997, I’ve seen too many seemingly strong and safe financial companies look good one day and then be crippled the next day… only for the investment community to later find out they were hiding or mismanaging liabilities.

However, I like to monitor the price action in broad groups of banking stocks. The health of a region’s financial system can serve as a good barometer of its overall economic health… or at least a good gauge of all-important financial liquidity, which has a huge influence on asset price movements. All the good time and all the bad times in a geographical region eventually make their way to the P&L statements of banks.

The stock market is the world’s greatest forecasting mechanism. It tends to look ahead 6-12 months. When an industry is in a recession, its stock prices will rise before the news media announces it is recovering. When an industry seems to be doing well, its stock prices will decline before the news covers its downturn. This is often called “discounting” or “pricing in” the future.

Applied to banking, when a region is about to start doing well, its banks will rise in advance of the good times. When a region is about to struggle, its banks will plummet in advance of the bad times.

A list of banking stocks as large and varied as the one above, all hitting new highs, means there is tremendous liquidity sloshing around the world’s banking systems.

It means there’s plenty of money to loan out to businesses, consumers, real estate developers, and infrastructure builders. It also means there’s plenty of money that can flow into stocks and send them higher. In layman’s terms, it means “Party On.”

Reading about bank stocks isn’t nearly as exciting as explosive sectors, such as AI and space, but this surge across a wide variety of major banks is hugely important.

Will the boom in global financial liquidity and stock markets come to an end someday? Sure. All booms eventually end. But for now, the money spigots are open, and this very important trend is up. Position yourself accordingly!

This stock is the best way to invest in AI and robotics at the same time

Credit: HJBC

Over the past year, I’ve frequently called Amazon (AMZN) “the best way to invest in AI and robotics at the same time.”

To this thesis, the market is saying, “So far, so good.”

Avid Money & Megatrends readers know that we believe AI and robotics are two of the biggest business and investment trends of the 21^st century. They will revolutionize the way we work and play as much as electricity or the automobile did…. while creating huge stock market winners along the way.

Tech giant Amazon is uniquely positioned to benefit from both technologies.

Although everyone knows about Amazon, the online retailer, and almost everyone is a customer, most people don’t know about Amazon, the giant employer of robots.

Last June, Amazon announced it had deployed its 1 millionth robot across its business. It describes itself as the world’s largest manufacturer and operator of mobile robotics.

Amazon operates more than 1,000 warehouses in the U.S. It ships millions of packages across millions of miles every month. This blizzard of activity can become more efficient and profitable with AI-enhanced logistics and robots that don’t complain, don’t take coffee breaks, and don’t ask for raises.

In other words, Amazon is uniquely well-suited to benefit from a megatrend in which robots will become cheaper, faster, more dexterous, more durable, and smarter in the near future.

Amazon is also heavily involved in AI. Its huge AWS cloud computing division is benefiting from skyrocketing demand for AI compute. Amazon recently reported that this division generated a huge $42 billion in quarterly revenue and 37% year-over-year growth. Amazon also owns equity stakes in AI leaders OpenAI and Anthropic.

Add these robotics and AI assets to the world’s largest online retail business, and you get a pretty good bet on the future of technology in one stock.

But don’t take our word for it. Take the market’s word.

After reporting fantastic second-quarter business results on July 30, Amazon’s stock surged to a new all-time high. The stock is up 18% over the past year. Given that we are in the early days of the proliferation of AI and robotics, we expect to see this uptrend continue.

Market Notes

• Our recommendation to invest in the Agent Supernova via the communication infrastructure and cybersecurity provider Cloudflare (NET) continues to pay off. The stock jumped to an all-time high this week. It has risen 34% since our recommendation less than two months ago.

• Our unique debasement trade of owning sports franchise firm Madison Square Garden Sports (MSGS) is a big winner. The stock is up 43% since our January research note.

• Our recommendation to invest in the Boomer health care megatrend continues to pay off. Drug giant Merck (MRK) reached a new all-time high this week. The stock has returned 69% over the past year.

• The ophthalmology boom we detailed in June continues to create stock winners. Eye health giant Glaukos (GKOS) reached a new all-time high this week.

Regards,

Brian Hunt
Editor, Money & Megatrends

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