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Warren Buffett says this is the best type of business to own when inflation spikes

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Inflation is high. You might as well profit from it

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High inflation rates across the globe have become a serious concern on Wall Street.

But fortunately for everyday investors, Berkshire Hathaway chief Warren Buffett has plenty of experience in navigating such an environment.

Buffett managed a stock portfolio through periods of double-digit inflation rates in the 1970s and has plenty of advice on what to own when consumer prices spike.

In a 1981 letter to Berkshire shareholders, Buffett highlighted two characteristics that make a business well adapted to an inflationary environment: 1) an ability to increase prices easily, and 2) an ability to take on more business without having to spend too much in order to do it.

In other words, aim to invest in asset-light businesses with pricing power.

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Let’s take a quick look at three companies that fit that description (plus a “forever investment” and an online trading platform ).

Nike (NKE)

Nike store front in shopping mall. Nike is an American multinational corporation that design, manufacturing, marketing and sales athletic shoes and apparel.

TY Lim/Shutterstock

Nike is a global footwear powerhouse that commands high customer loyalty.

Customers are willing to pay top dollar for signature gear associated with high-profile athletes like LeBron James and Michael Jordan.

Despite inflationary pressures, Nike continues to expand gross margins and post solid returns on equity well above 30 per cent.

The company is also capturing the full price of its products in an increasingly digital, direct-to-consumer business model.

Management believes digital sales could continue to grow from 20 per cent of revenue currently to about 40 per cent of the business by 2025. And price increases could kick in as early as next year.

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Amazingly, profit margins may keep expanding, even as operating costs rise with inflation.

Nike shares are up about 19 per cent so far in 2021.

Apple (AAPL)

Apple store on June 29,2014 in Frankfurt,Germany.Apple Inc. sells consumer electronics, computer software, services and personal computers.

Vytautas Kielaitis/Shutterstock

Global demand for Apple’s premium-priced hardware is growing, as are adoption rates for its high-margin Apple services.

Strong brand identity, user-friendliness, and a wide range of fully integrated products are powerful attributes that aren’t going away any time soon.

Customers just can’t afford to live outside the Apple ecosystem. That gives the tech giant more freedom to play with pricing as inflation spikes.

The company’s latest M1 chips, which will gradually replace Intel’s CPUs in every single Mac, underscore its commitment to constant innovation.

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Apple’s ability to pass rising costs to a global consumer base without significant loss of sales volumes is undeniable.

Warren Buffett has allowed Apple to grow to 40 per cent of Berkshire Hathaway’s investments portfolio for good reason: The business just keeps growing profits through all economic cycles.

Apple is up about 13 per cent year to date and trades at nearly $150 per share. But if you’re on the fence about jumping in at the current level, Wealthsimple’s investing app allows you to buy a fractional share of Apple .

Levi Strauss & Co. (LEVI)

Various Levis Jeans labels collection close up , product shot

dean bertoncelj/Shutterstock

A market leader in the denim business, Levi Strauss has been firing on all cylinders of late.

Specifically, its well-known brand and flexible business model have enabled management to grow the top line without sacrificing pricing power.

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In the most recent quarter, revenue increased 41 per cent while adjusted gross margin improved 390 basis points to 57.5 per cent.

In fact, management proactively started adjusting its pricing for inflation back in 2020.

The company also sources raw materials from 24 different countries. And that kind of supply chain diversification provides Levi Strauss with plenty of flexibility during times of crisis.

Levi shares are up more than 30 per cent in 2021.

The ultimate ‘forever asset’?

Aerial view of endless lush pastures and farmland.

MNStudio/Shutterstock

Warren Buffett once said that his favourite holding period is forever.

But forever is a long time, and since companies rise and fall, growing your wealth by never selling a share may not be the best strategy.

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But there might be one inflation safe haven that’s worth holding forever — U.S. farmland.

No matter how high or fast consumer prices climb, people still need to eat. And it just so happens that Buffett’s good friend Bill Gates is America’s largest private owner of farmland.

U.S. Farmland REITs (real estate investment trusts) like Gladstone Land Corporation (LAND) and Farmland Partners (FPI) are great options for investors looking to diversify further since you need to be an accredited investor to invest directly in farmland (both in the U.S. and Canada)

Those looking to add farmland investments should certainly explore online trading platforms . The best sites offer resources and tools to help investors make informed decisions as they build and manage their investment portfolios.

This article was created by Wise Publishing. Wise is devoted to providing information that helps readers navigate the complex landscape of personal finance. Wise only partners with brands it trusts and believes may be helpful to the reader. This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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Bloomberg names Green ME of finance for Americas

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Rick Green

Rick Green has been named managing editor for finance in the Americas at Bloomberg News, effective July 11.

He is currently senior editor for markets at Bloomberg.

Green was previously a team leader for distressed company news. He was also corporate finance editor and a senior editor on the U.S. finance team.

Before Bloomberg, Green was assistant managing editor for business and technology at Newsday. He also worked at BusinessWeek magazine as a senior editor and at SmartMoney magazine.

 





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Liberty Steel secures time with Greensill as debt rstructuring continues

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Liberty Steel Group has entered a standstill agreement with Greensill Bank.

It pauses all enforcement actions between the South Yorkshire headquartered business and the subsidiary of the collapsed financial institution as it focuses on recovery.

Greensill Bank, part of Greensill Capital, is Liberty’s largest creditor on the business’s debt facilities, provided in 2019.

Read more:£26m British Steel Special Profiles upgrade given the go-ahead

The agreement lasts until October 31, with potential to extend until the end of the year.

Liberty said it will enable the company to develop a longer term sustainable financing structure, with detailed due diligence and information exchange continuing between the two parties.

A Liberty spokesperson said: “Today’s standstill agreement with Greensill Bank demonstrates we are getting close to a consensual debt restructuring that is in the best interests of all our stakeholders.

“We are working intensively towards a settlement with our major creditors in a timeframe which would obviate the need for a legal battle. Our core businesses continue to perform well and are operationally strong despite some economic headwinds.”

HMRC had filed then withdrew a winding up petition for Liberty earlier this year as progress with creditors was made.



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At Close of Business: Jordan Murray talks an Australian republic

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Journalist Jordan Murray discusses revived debate over the possibility of an Australian republic.



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