For the first time in four years, inflation finally fell. In June, the Consumer Price Index (CPI) slipped 0.1% to 3%. Baby steps.
Yet it has given rise to the hope the Federal Reserve will cut interest rates as soon as September. After an unprecedented series of 11 hikes over the course of a year beginning in 2022, we may begin to see them head lower again.
Just don’t hold your breath. There is a lot of time between now and when the Fed bank presidents meet again and we could always see inflation in July and August tick higher. That would surely put rate cuts on ice.
And let’s be clear. It was the all-items CPI number that fell. Remove food and energy costs, which tend to be volatile, and inflation actually rose 0.1%. Now I’m all for using the all-items index because that’s what consumers are spending their money on, but it is clear we are not seeing an across-the-board decline.
Inflation over the past four years is now cumulatively over 20% higher than where it was in 2020. A 0.1% tick lower does nothing to ease the pain on household wallets. We would need significant disinflation to return things to normal. So even if interest rates are cut, consumers are still hurting and that makes the first two companies on this list stocks to sell. The last is one you will want to buy if inflation doesn’t ease further.
Stocks to Sell: Lucid Group (LCID)
Luxury goods tend to be inflation-resistant. The wealthy can withstand the ravages of a bad economy better than the average consumer. But not when it comes to selling upscale electric vehicles (EVs), where most buyers are seeking out cheaper cars to make the investment worthwhile. That’s why if you haven’t already sold your shares in Lucid Group (NASDAQ:LCID), it’s time to do so. The luxury EV manufacturer is one of the stocks to sell amid persistent inflation.
Despite the car maker reporting its highest delivery count ever, Lucid still has a large backlog of unsold inventory sitting on dealer lots. That means more price cuts over a longer period of time will be needed to reduce current inventory and clear the way for the new vehicles it is producing.
Lucid must also confront the problem of the EV car-buying public not looking for expensive cars. There will always be a small segment of the market, especially among the well-to-do, where price is not an issue. But if Lucid wants to be more than just a small, niche company, pricing is an issue.
And right now, the financing cost of new EVs is exacerbating the problem. If inflation remains stubborn and the Fed doesn’t cut interest rates, that could dash Lucid Group’s hope of becoming profitable.
SunPower (SPWR)
Financing costs are also one of the issues behind SunPower (NASDAQ:SPWR). The solar panel maker lost 75% of its value over the past year as the solar industry got demolished from declining residential system installations. In short, it is just too expensive to pay for new panels to be installed. Ongoing high interest rates make SunPower another one of the stocks to sell right now.
But that is only part of SunPower’s woes. Its financials are a mess. The company was already restating two years worth of financial data but then SunPower fired its CEO followed by firing its chief operating officer, too.
To add insult to injury, its auditor, Ernst & Young, announced it was resigning because it didn’t want to touch the solar shop’s financial reports with a 10-foot pole. It told SunPower’s audit committee that “information has come to its attention that has made EY unwilling to be associated with the financial statements prepared by management.”
There is no reason to hold onto SunPower’s stock right now and, if inflation persists, it makes the company a stock to sell anyway.
Stocks to Buy: First Majestic Silver (AG)
Precious metals are a good hedge against inflation. Because silver has multiple industrial uses in addition to being a precious metal with an inherent store of value, buying a silver miner instead of a gold miner is the way to go. First Majestic Silver (NYSE:AG) is the industry’s premier silver miner but it also produces gold. More than half of its revenue, though, is derived from silver.
Silver is currently priced just under $31 per ounce. That is its highest level in five years. And though it remains below the all-time high of around $50 per ounce hit more than a decade ago (and also back in the 1970s), it is showing resilience today. Gold is going for around $2,460 per ounce, just off its all-time high.
First Majestic’s profits come from the difference between its cost of production and silver and gold’s selling price. It should soon begin reaping the benefits of high prices and persistent inflation. Its all-in sustaining costs (AISC) stands at around $21.50 per ounce, indicating profitable operations. Moreover, with the turmoil created by the attempted assassination of former President Donald Trump, the uncertainty should keep precious metals prices elevated.
For a world where inflation drags on, interest rates stay high and global uncertainty remains a constant, First Majestic Silver is a stock to buy.
On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not hold (either directly or indirectly) any positions in the securities mentioned in this article.