Analyst: buy quality growth stocks to fight decline in earnings growth

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Higher inflation is generally seen as a negative for earnings growth, but a Piper Sandler analyst says high-quality growth stocks are the smart picks for such an environment.

How are quality growth stocks a good pick?

According to Michael Kantrowitz, switching to “value” on fears of inflation is a “backward-looking” approach. Defending his thesis on CNBC’s “Power Lunch”, he said:

As earnings growth becomes scarce, investors often gravitate towards it and pay up for it with a premium. We’re coming off of a strong earnings recovery over the last year, but that’ll change dramatically. So, switching to ‘value’ is a little bit backward-looking rather than forward-looking.

The U.S. Federal Reserve is likely to raise rates by 50 basis points in its next meeting as a new wave of the Coronavirus in China and the Ukraine war threatens to aggravate inflation.

Which stocks in particular does he recommend?

Kantrowitz recommends stocks like Microsoft, AutoZone, UnitedHealth, Exxon Mobil, and, interestingly, Procter & Gamble to combat inflationary pressures. He added:

P&G isn’t a big growth stock but it’s a combination of stable, visible, profitable growth. We’re not necessarily recommending growthiest stocks. Finding fastest growers works when growth is slowing and rates are coming down; that’s not what we’re looking ahead towards this year.

In January, Procter & Gamble reported market-beating results and offered upbeat guidance for the future.

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