As oil prices remain elevated due to the ongoing conflict in the Middle East, analysts on Wall Street have started to sound the alarm on the possible return of stagflation after more than five decades.
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To help investors build their portfolios and brace for such a condition, this article spotlights three exchange-traded funds (ETFs) that investors bank on to weather a possible stagflation storm. They are the Health Care Select Sector SPDR Fund (XLV), the Consumer Staples Select Sector SPDR Fund (XLP), and the Utilities Select Sector SPDR Fund (XLU).
These funds were selected for their Buy ratings from analysts and significant upside potential.
The Health Care Select Sector SPDR Fund (XLV)
This ETF provides investors with exposure to a wide range of businesses across the healthcare sector, including drugmakers, medical device companies, and healthcare providers. Analysts currently have a Moderate Buy rating on XLV based on 51 Buys and 10 Holds issued over the past three months. The ETF is currently down year-to-date by a marginal 0.35% but offers an upside of about 19% based on the average price target of $182.59.
Consumer Staples Select Sector SPDR Fund (XLP)
This ETF seeks capital appreciation for investors through exposure to consumer staples — that is, everyday essential products and services such as food, beverages, household products, and personal items. Analysts also currently rate XLP a Moderate Buy based on 25 Buys, nine Holds, and three Sells assigned in the last three months. The ETF has gained 10.35% year-to-date and offers over 11% upside based on an average price target of $94.37.
The Utilities Select Sector SPDR Fund (XLU)
XLU also targets a key sector of the economy: utility companies. These companies provide electricity, water, natural gas, and wastewater services critical for the proper functioning of society. Analysts presently consider the ETF a Moderate Buy based on 22 Buys and 10 Holds recommended over the past three months. The ETF has gained about 9% since the start of the year and currently offers roughly 10% upside based on an average price target of $50.72.
What Is Stagflation?
Stagflation refers to the situation where economic growth stays stagnant while inflation rises sharply. The ETFs discussed above provide exposure to sectors known for their resilience during periods of economic slowdowns.
These sectors have inelastic demand and are based on real assets, making them a standout even during periods of economic volatility.