Welcome to Disinflation! 3 Top Stock Picks for Slowing Inflation.

Stocks to buy

Inflation-resistant stocks naturally dominated the equities research landscape as a robust labor market continued to confound the Federal Reserve. However, we may have reached a point where the central bank has had enough. If policymakers don’t lay down the gauntlet, accelerating prices may get out of control. Therefore, it’s time to consider investing during disinflation.

First, disinflation refers to a slowing rate of inflation, meaning that prices may still be high against historical norms. However, the pace of rising prices gradually declines. And it’s a possible if not probable outcome because of two factors from the June jobs report: a declining unemployment rate and steady month-to-month wage growth. Therefore, investors should consider top stocks for disinflation.

Second, disinflation carries a significant impact to business sentiment because it implies higher borrowing costs from rising benchmark interest rates. Put another way, we could see recession-like hallmarks such as mass layoffs. Therefore, investors should consider the below stocks for slowing inflation, just in case.

Allstate (ALL)

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According to the corporate profile of insurance firm Allstate (NYSE:ALL), the company protects people from life’s uncertainties with a wide array of protection for autos, homes, electronic devices, and identity theft with more than 172 million policies in force. In other words, whether you’re looking for inflation-resistant stocks or for enterprises that may directly benefit from disinflationary forces, Allstate brings a compelling business to the table.

Sure, it’s not off to a great start, I’ll give anyone that. Since the Jan. opener, ALL stock fell nearly 22%. In the trailing year, it’s down 18%. Still, Allstate makes a great case for investing during disinflation because of its captive audience narrative. No matter what happens with monetary policy, people will need basic property and casualty insurance protection.

After all, it just takes one bad accident on America’s increasingly dangerous roadways to fall into financial ruin. Therefore, it’s just not worth skimping on coverage. Also, to better make the case for top stocks for disinflation, ALL trades at 5.83 times free cash flow. In contrast, the underlying sector median stands at 7.73 times, meaning Allstate offers a compelling discount.

Atmos Energy (ATO)

Source: shutterstock.com/Wojciech Wrzesien

Headquartered in Dallas, Texas, Atmos Energy (NYSE:ATO) is the nation’s largest fully regulated, natural gas-only distributor of safe, clean, efficient, and affordable energy. In addition, Atmos carries a directive to be the safest provider of natural gas services. As a result, it’s modernizing its business and infrastructure while continuing to invest in safety, innovation, and sustainability. Just from an overall relevancy standpoint, Atmos rates as one of the inflation-resistant stocks.

Heading toward the end of the year, if the economy incurs elements of disinflation, Atmos will be just as relevant. Given the intermittency of renewable energy sources like wind and solar, hydrocarbon-based energy will surely have a long shelf life. Therefore, ATO offers a viable candidacy for stocks for slowing inflation.

On the financial front, Atmos’ best quality arguably centers on its consistent profitability. As well, its operating and net margins (on a per-share basis) clock in at 21.99% and 18.18%. Both stats rate well above the underlying sector average. Finally, ATO trades at 5.21 times the operating cash flow. In contrast, the sector median stands at 8.05 times. For stable stocks in disinflation that you can get at a discount, Atmos is worth a look.

Kelly Services (KELYA)

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An employment staffing agency, Kelly Services (NASDAQ:KELYA) connects talented people to companies in need of their skills in areas including science, engineering, education, office, contact center, light industrial, and more. Per its public profile, Kelly embraces the value of all work styles in the workplace and this attribute is what makes KELYA one of the inflation-resistant stocks. If you have any marketable skills in any industry, Kelly can probably hook you up with a job.

However, should the Fed raise interest rates to tackle rising consumer prices, KELYA would make for an excellent choice for top stocks for disinflation. By logical deduction, hiked rates translate to higher borrowing costs. And that crimps companies’ expansionary directives. As a result, mass layoffs will probably materialize. Naturally, desperation may rise among job seekers.

Put it cynically, beggars won’t be choosers. Frankly, this framework should lift Kelly Services as again, it facilitates connections for various professional categories. Enticingly, the market prices KELYA at a forward multiple of 11.61. As a discount to projected earnings, Kelly ranks better than 68.46% of the competition.

On the date of publication, Josh Enomoto did not have (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.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

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