Inflation - what have we learned from earnings so far, and which stocks could benefit
gesrey/iStock via Getty Images

Investors don't need to see the Federal Reserve's CPI report to know that inflation has arrived. The evidence is all around. The cause of the price inflation is a source of debate, while the path forward for investors looking to navigate inflation risks is altogether unclear. With two weeks of Q4 earnings in the books, it's worth looking back to see where inflation is emerging, how long it could persist for, and who stands to benefit. 
This week the Bloomberg Commodity Index, a basket of 23 raw materials from oil to copper, aluminum and sugar, reached an all time high. The unfortunate fact for consumers is that nearly everything we can buy and touch is derived from the products in this index. Corporate commentary during earnings reflects the fact that inflation has arrived: 

General Electric (NYSE:GE) - "Segment margin declined year-over-year, largely driven by supply chain issues and inflation."
Sherwin Williams (NYSE:SHW) - "Our full year and fourth quarter were marked by industry-wide supply chain disruptions, unprecedented cost inflation."
McDonalds (NYSE:MCD) - " In 2022 ... operating income will be hampered by significant commodity and labor inflation in the near term."

The source and duration of price inflation remains a point of debate. Larry Summers took a twitter victory lap this week following the Federal Reserve's recognition that inflation is a key risk to the US economy. Mr. Summers alluded to quantitative easing as a source of price inflation. In a research note earlier this month, Goldman's commodity strategist pointed to a lack of energy and mining investment leading to a super-cycle in commodities. Corporate leaders see inflation emerging everywhere from short-term pandemic-related labor shortages, to transport costs, and sustained raw material price increases: 

Southwest Airlines (NYSE:LUV) - "We are experiencing higher unit cost inflation ... The Omicron variant significantly impacted our available staffing ... and we temporarily extended incentive pay for Operations Employees"
Johnson and Johnson (NYSE:JNJ) - "There are some, I'd say, probably increased labor costs with respect to third-party manufacturers, and we're obviously seeing heightened transportation costs."
3M (NYSE:MMM) - " Inflation, I think we will have to watch how the different factors play out back to raw material logistics... we are seeing inflation has gone downstream now. So youâre seeing it in much more places than you had seen it before."

Which leaves investors wondering how best to avoid inflation risks, or even benefit from a continued rise in price levels. Many investors have deep-held beliefs in monetary tools from gold (NYSEARCA:GLD) to bitcoin (BTC-USD). However, many also agree that investors can protect themselves from inflation by acquiring stocks of businesses which see cash flows increase as inflation rises. Some companies are citing an inflation tailwind in this environment: 

Dow Chemical (NYSE:DOW) - "I'm not pessimistic about inflation ... honestly, inflation has always been a positive for our business, and ... when the Fed raises interest rates, that typically tends to drive outperformance."
Boeing (NYSE:BA) - "New airplanes we deliver will be as much as 25% to 40% more fuel efficient ... and as oil prices remain high, our customers are keenly aware of these benefits."
Intel (NASDAQ:INTC) - "we think we have a structurally superior margin model .. everybody is seeing acute inflation and foundry costs .. where our factory network will give us a lot more opportunities."

There's no clear answer for investors at this junction. Inflation is a complicated and complex issue. However, for those who expect continued price pressure, buying the companies making the commodities whose prices are rising could be the best answer. With the market down ~10% in recent days, companies like Chevron (NYSE:CVX) are sitting at an all-time high. These value stocks flagged by SA's head of Quantitative Strategies have also performed well in this inflationary environment. .