Successful American billionaire reveals where to invest in times of high inflation

Although the first signs of slowing inflation have emerged, it remains very high. The Fed has already moved to raise interest rates several times this year to slow this worrying trend, with another hike expected at the September 21 meeting. Where to invest specifically in these difficult times was recently revealed by American billionaire Kevin O'Leary.

Kevin O'Leary

Companies with pricing power

In the current situation, Kevin O'Leary is looking for companies that are able to raise prices without too much pressure from consumers.

"Where you want to be in equities, especially when rates start going up, are companies that have pricing power," O'Leary says. "In other words, their goods and services are a necessity for people, so they're willing to accept small price increases, sometimes larger ones as prices rise."

But where to find such businesses with pricing power? According to O'Leary, right now the health care industry is looking really good, and the consumer companies are looking really good, too. He adds that investors should pay attention to companies that make things that people still need and can't do without in times of inflation, especially food, household goods and auto parts.

Focus on energy

O'Leary singles out the energy sector as a particularly prudent place to park money during periods of high inflation. Fuel to run your car, heat your home or cook your food is more expensive. As a result, energy stocks have been outperforming for months. Despite the recent drop in oil prices, shares of Big Oil companies ExxonMobil $XOM-1.6% and ConocoPhillips $COP-1.3% have risen roughly 78% and 101%, respectively, over the past year.

Technology stocks, on the other hand, are not doing so well these days. The tech Nasdaq is down 23% year-to-date. O'Leary adds that tech stocks with high P/Es are experiencing increased selling pressure as the Fed's stance on free money changes. "As interest rates rise, P/Es fall, stock prices correct lower."

O'Leary's top pick

For long-term investors, holding an ETF that tracks the S&P 500 $^GSPC-0.2% index has been a popular strategy. But O'Leary doesn't believe in owning a broad-based benchmark index in today's environment. His concerns again revolve around inflation and the Fed. Simply owning an index could be very risky because lower-quality companies like airlines right now may be more burdened with servicing debt in a higher interest rate environment.

Instead, O'Leary is essentially advertising himself and proposing to own his flagship ALPS O'Shares US Quality Dividend ETF instead of the S&P 500 . O'Leary says owning an ETF is a good strategy to fight inflation because it's full of companies that provide products and services that people need.

"The ETF collects the highest quality companies that generate cash, companies with high return on assets that make capital distributions in the form of dividends," he says.

The ETF's top five stocks are Johnson & Johnson $JNJ-1.2%, Procter & Gamble $PG-1.0%, Microsoft $MSFT+0.4%, Home Depot $HD-1.0% and Apple $AAPL+0.5%. These companies have been around for a long time. They have survived and thrived during periods of high inflation. They have also provided steadily increasing dividends over time.

DISCLAIMER: All information provided here is for informational purposes only and is in no way an investment recommendation. Always do your own analysis.

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