MARKET OUTLOOK 2Q 2022:

How to Navigate an Uncertain Environment:
Follow the Data to the Top 5 Inflation Hedges

There’s a lot of uncertainty in the world right now. When will the Russia-Ukraine conflict end? How high will oil, natural gas and rare earth metals prices soar in the wake of the conflict? Will inflationary pressures ease this year? Will the Federal Reserve raise key interest rates in 50-basis points increments? And will the U.S. economy slip into a recession as a result?

It’s a trying time to be an investor, that’s for sure! But amidst all this uncertainty, there is one certainty that we can count on: the stock market is a great inflation hedge. If you’re invested in the right stocks, you can still prosper from this uncertain environment—and in this special report, Navellier & Associates will pull-back the curtain on the best inflation-proof sectors you should consider.

Authored by Louis Navellier,
Chief Investment Officer, Navellier & Associates, Inc.

Co-Authored by Bryan Perry, Gary Alexander, Ivan Martchev, and Jason Bodner
Contributors to Navellier & Associates’ weekly Marketmail newsletter

NOVEMBER 2021

Navellier & Associates, Inc.
One East Liberty, Suite 504
Reno, Nevada 89501
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info@navellier.com
www.navellier.com
NCD-22-0439

Do you remember those Magic 8 balls? Ask it a question, give it a shake and it responds with one of 20 possible answers. After one of the rockiest first quarters on record for the stock market, I think if investors were to ask the big question on their minds—what’s next for the stock market—they’d likely receive one of the five non-committal answers, like “reply hazy, try again” or “cannot predict now.”

Market pundits, though, aren’t afraid to jump on their soap boxes with answers that range from the positive answers like “outlook good” to the negative answers like “outlook not so good.” Others may even point to Wall Street adages for their “proof” on where the market is headed next.

Some would tell you, “As January goes, so goes the year.” Well, the S&P 500, Dow and NASDAQ all declined 5.3%, 3.3% and 9%, respectively, in January. So, some of these analysts would certainly tell you that the market will continue to dip lower in the upcoming months, and that it’s time to batten down the hatches.

Interestingly, the stock market has already proved these analysts wrong. Yes, the stock market did end the first quarter lower, with the S&P 500, Dow and NASDAQ down 4.9%, 4.6% and 9.1%, respectively. But all three of the major indices roared back to life in the second half of March and even ended the month higher: The S&P 500 rallied 3.7%, the Dow climbed 2.5% and the NASDAQ rose 3.4%.

Still, that won’t quell the “Negative Nellies.” Some analysts will likely proclaim that it’s time to “sell in May and go away,” if they haven’t already convinced you to bow out of the stock market after the volatile first quarter. They’ll claim the stock market performs erratically during the summer months, without much ground gained—if any at all. So, in their opinion, you’re better off to the exit the market and come back in the fall.

Personally, I’ve never put much stock in Magic 8 balls or Wall Street adages—and none of us has a crystal ball that predicts the future. So, I prefer to let the data do the talking.

And the latest data from our friends at Bespoke Investment Group reveals that the stock market is positioned to build on its March gains and climb higher in the upcoming months.

Inverted Yield Curve Actually Points to a Higher Stock Market

It’s no secret that Wall Street has been laser-focused on the yield curve recently. With a more hawkish Federal Reserve anticipated to continue to raise key interest rates at a much more aggressive pace this year—with several 0.50% increases now very likely—the yield curve has flattened and even briefly inverted in recent weeks.

In fact, the all-important two-year Treasury vs. 10-year Treasury yield curve inverted in the final trading week of March. Historically, that’s been a precursor to a recession. Bespoke even pointed out that when the two-year and 10-year Treasury yield curve inverts, there’s a more than 67% probability that the U.S. will fall into recession in 12 months and a more than 98% probability that a recession will occur in the next two years.

That’s a pretty bleak outlook. So, why did the stock market continue to rally and end the month of March higher? Remember, the S&P 500, Dow and NASDAQ ended March up 3.7%, 2.5% and 3.4%, respectively.

Well, part of the market’s strength in the latter half of March can be attributed to what I like to call “quarter-end window dressing.” Essentially, window dressing occurs at the end of each quarter when institutional investors and fund managers take steps to shore up their clients’ portfolios to make them “pretty.” This often involves buying stocks with the best fundamentals and the best performance during the quarter. So, I believe, quarter-end window dressing tends to create forced buying pressure under fundamentally superior stocks.

But another reason for recent market strength—and further strength in the upcoming weeks—may stem from historical precedence. The reality is that history also shows the stock market tends to rally following a Treasury yield curve inversion. Probably because all those bond investors aren’t having much fun in the bond markets and turn to stocks instead.

Bespoke pointed out that in the six instances when the yield curve inverted between 1978 and today, the S&P 500 was higher two-thirds of the time in the following month, as well as three and six months later. In the previous six instances, the S&P 500 climbed an average 1.57% in the following month, an average 1.92% in the next three months and 4.83% six months out. Even more impressive, the S&P 500 rallied an average 13.33% in the 12 months following a yield curve inversion.

With numbers like that, stock investors should be cheering for an inverted yield curve!

Of course, no one wants to see the U.S. fall into a recession—and as of now, thankfully, the economic data isn’t pointing to an economic downturn. The Atlanta Fed even revised its first-quarter GDP estimate to 0.9% at the start of April, compared to its mid-March estimate for 0.5% annual GDP growth.

However, it’s very hard for the Fed to engineer a “soft economic landing” when intermediate Treasury yields soar. Higher rates tend to weigh on economic growth. Personally, I cannot remember the last time the Fed successfully engineered a soft economic landing. If the Fed can avert a recession, I will give them full credit for their actions. Right now, though, the tail (e.g., intermediate Treasury yields) is wagging the dog (e.g., the Fed), so we have a series of interest rate hikes to look forward to until the Fed is more in-line with market rates.

Essentially, this means that businesses without big order backlogs or the ability to increase prices will likely struggle in an environment with weaker GDP growth and rising inflation. That’s why it’s vital to focus your investments on companies with accelerating earnings momentum, strong institutional buying pressure, and the ability prosper in a more inflationary environment.

Because while we may not know how the Russia-Ukraine conflict will play out, what economic data reports will reveal, or how central banks will react in the current environment, there is one thing that we know for sure: inflation is here to stay.

One Certainty: Prices Will Remain Elevated

Six months from now, when we look back on the first quarter of 2022, we’ll remember it as the time when inflation spun out of control. A few of the top headlines in March reveal how ridiculously high prices surged during the quarter and in the wake of the Russia-Ukraine conflict…

  • “Nickel Prices Soar to ‘Unprecedented’ Levels. Shanghai, London Halt Trading”
  • “Oil Tops $130 a Barrel as Russian Attacks Escalate”
  • “Wheat Finds New Record High”
  • “As Gasoline Prices Surge Nationwide, $5 Is a Bargain Around San Francisco”
  • “Inflation Reaches Four-Decade High of 7.9%”

Food and energy prices have certainly been the biggest pain point for most consumers. According to the United Nations, worldwide food prices surged 28.1% in 2021—and they’re only anticipated to increase further in light of the Russia-Ukraine conflict. The Ukraine accounts for 10% of global wheat production, and Russia accounts for 20%. So, food prices are expected to continue to soar higher, with the UN predicting another 22% jump this year.

That number isn’t too far-fetched either. The latest data from the UN showed food prices jumped 13% to a new record high in March. Even more eye-popping is the fact that global food prices have soared nearly 75% since mid-2020!

Energy prices have also climbed steadily higher since the start of the year and skyrocketed in March, with crude oil settling above $100 per barrel. In turn, gasoline prices rose above $4.00 per gallon in most of the U.S. and more than $5.00 per gallon on the West Coast.

The latest inflation data, overall, showed that prices across the board are soaring.

The Labor Department revealed that the Consumer Price Index (CPI) jumped to an annual pace of 8.5% in March. That’s the fastest pace in 40 years! Even core CPI, which excludes food and energy, increased 0.3% in March and is now at a 6.5% annual pace. Inflation was red-hot before the Ukraine-Russia conflict, and it’s only grown hotter since. And while I hate to say it, 10% annual consumer inflation is very possible in the upcoming months.

The Labor Department then followed up its red-hot CPI with an equally hot Producer Price Index (PPI). PPI rose 1.4% in March, above economists’ estimates for a 1.1% increase. Core PPI, which also excludes food and energy, climbed 0.9% in March. In the past 12 months, PPI has soared 11.2% and core PPI has jumped 7%.

I should also add that the Fed’s favorite inflation indicator, namely the Personal Consumption Expenditure Index (PCE) rose to a 6.4% annual pace through February. Core PCE, which again excludes food and energy, is now running at a 5.4% annual pace. Of course, the Fed aims to bring the PCE back down to its 2% threshold, but it will have to wait until 2023 or even later to achieve that inflation goal.

The Euro Zone also recently revealed that inflation is now at record highs—and still anticipated to increase further in the upcoming months. In the 19 countries that make up the Euro Zone, inflation soared to 7.5% in March, compared to 5.9% in February. That vastly exceeded expectations for 6.6%, as the Russia-Ukraine conflict ignited energy prices.

Inflation in the U.K. isn’t much better, rising to a three-decade high of 6.2% in March. According to the British Chambers of Commerce, more and more businesses are now looking to increase prices in the upcoming months. In fact, a survey revealed that two-thirds of businesses plan to increase their prices in the next three months.

Clearly, red-hot inflation will persist for the foreseeable future.

In my opinion, the best way to offset higher prices in the grocery store and at the gas pumps is to focus our attention on companies that are profiting from rising prices for crude oil, natural gas, fertilizers, food staples, and building materials. In other words, we need to invest in growth stocks.

A Return to Growth

There’s a lot of talking heads that would have you believe that the time for growth stocks is over. That inflation and the Federal Reserve’s efforts to curb inflation with key interest rate hikes will hurt growth stocks. Folks, nothing could be further from the truth.

The reality is that the Fed’s actions will impact more cyclical stocks like housing and financial stocks like banks. Growth stocks, on the other hand, are largely immune to interest rate increases, as they should continue to announce strong earnings and sales growth despite a decelerating economic environment.

Jason Bodner , who writes Sector Spotlight in the Navellier & Associates weekly Marketmail, recently commented on this exact topic, covering the correlation between the Fed, interest rates, and growth stocks. And he came to the same conclusion: Investors will return to growth stocks this year.

Today, Fed Chair Jerome Powell is faced with a dilemma similar to Bernanke’s “taper tantrum” in 2013. He must fight inflation and hint at tighter money policy, but not too much to tank the economy. … I think this is Taper Tantrum 2.0.
The Fed has to send signals because it needs to engineer a soft landing. Rates can’t rise too fast because all the stimulus, aid and QE was designed for one thing—to keep our economy afloat and progressing.

Why would the Fed undo all those years of work now? And given how huge the balance sheet is, the Fed can’t hike rates too fast, as the interest on our federal debt will become crippling. But a raise of rates to 2% or less isn’t crippling. Even if it did raise rates that high, we’d still be under mid-2019 levels:

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

The Fed must fight vicious inflation, but I doubt that it will cut our nose off to spite our face. That’s why I think growth stocks are actually a good buy right now. I know, it may have been volatile, ugly, and painful to be a growth investor in recent months, but it’s been glorious for the past 30 years.

The only thing that can keep our economy forging ahead is the growth of commerce. Over the long term, there’s been no better place to invest than in growth stocks.

That is Jason’s opinion, but I agree and I couldn’t have said it better myself!

But let me add something: You may recall that growth stocks fell out of favor in the early Spring of 2021, too. From mid-February to mid-May, Wall Street had shifted its attention and value was outperforming growth. The shift came at the onset of surging inflation. The talking heads proclaimed inflation would hurt growth stocks, and value stocks would outperform over the long term.

We all know how that played out. Growth came roaring back in the second half of 2021.

The fact is that it was never a real value rally in 2021. It was what I call a “mean reversion rally.” Once the first-quarter 2021 results were released, growth reasserted itself, as the results proved that growth stocks can still add to their top and bottom lines in an inflationary environment. And they proved this fact over and over and over again in 2021.

I suspect this will be the case again this year. In fact, the most amazing thing to me is that I expected earnings to decelerate in the first quarter due to slowing economic growth. However, by making a few strategic investments in commodity-related stocks, as well as shipping, food staples, fertilizer, and building materials stocks, the earnings profile of the companies we invest in are still accelerating!

The first-quarter earnings announcement season will reveal just how inflation-proof these stocks are—and I look for Wall Street to pour into these growth stocks.

Top 5 Sectors for Inflation Hedges

Which stocks will garner this most attention? It is impossible to predict on a stock by stock basis, but you can use data including money flows to lead you to the sectors that are in the spotlight. Inflation and supply chain disruptions are currently creating big profits for companies that continue to experience robust demand and have the ability to increase prices for their products and services in order to offset their own higher costs. I believe, these companies are set to crush the analyst community’s earnings and sales estimates—and there are five sectors, in particular, that I think prospered immensely in the first quarter and are gearing up for a stunning second quarter.

Inflation Sector #1: Natural Gas

Natural gas prices have more than tripled in the past two years—and this surge is showing no signs of slowing down any time soon.

Back in 2020 during the COVID-19 pandemic, natural gas prices were trading below $2 per million British thermal units (Btu). But as economies reopened, summers heated up, and temperatures dropped in the winter, natural gas demand accelerated and soared to dizzying heights of more than $5 per million Btu.

As you can see in the chart above, natural gas prices pulled back at the end of 2021 but have since surged 43% in the first three months of 2022 alone, with prices at about $5.33 per million Btu. Given the Russia-Ukraine conflict and tight inventories, economists and energy companies alike expect natural gas prices to remain elevated, between $4.50 and $6 this year.

Part of the rise in natural gas prices can certainly be attributed to Russia’s invasion of the Ukraine. The U.S. has instituted a complete ban on oil, natural gas, and coal imports from Russia. The U.K. plans to completely reduce its reliance on Russian oil by the end of the year. And the European Union (EU) has cut its natural gas imports from Russia by two-thirds.

The latter has been a big driver of natural gas prices, as Russia supplies approximately 40% of all natural gas imports in the EU. To help the EU cut its reliance on Russian natural gas, the U.S. has committed to boosting its shipments of liquefied natural gas (LNG). The U.S. plans to send 50 billion cubic meters of LNG to Europe annually for the next eight years, which is up from 22 billion cubic meters in 2021. To put this into perspective, that will cover about one-third of the natural gas shipments that Europe typically receives from Russia.

Interestingly, as Bryan Perry, the Senior Director with Navellier Private Client Group, recently pointed out, Europe isn’t the only one reliant on Russian natural gas—and that’s setting the stage of even higher natural gas prices this year.

The fallout of cutting off Russian gas extends well beyond Europe. China just surpassed Japan as the largest importer of Russian LNG, with South Korea holding the #3 position, according to the U.S. Energy Information Administration (EIA). While China will very likely continue to import Russian LNG and oil, Japan, South Korea, and other Asian nations will likely opt for U.S. exports.

China has room to take in more Russian LNG, with its import capacity more than doubling from 2013 to 2020. In 2021, China’s LNG needs were supplied by 23 countries, Australia being the largest. U.S. LNG exports to China rose 320% in 2021 over 2020, ranking just behind Australia. Global LNG demand is expected to double by 2040, even as progress on renewables continues but still falls hugely short of necessary fuel to power the planet at the expense of lower coal use.

China’s domestic appetite for natural gas is born out of its government’s new policies for cleaner power suppliers—namely, to convert to clean gas from dirty coal. Even if China raises Russian LNG imports to offset reductions in European imports, China is still expected to maintain growing U.S. imports to meet rising LNG capacity, with several new terminals coming online.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

LNG prices are ultra-volatile coming out of the winter high-demand season into the lower demand of the “shoulder months.” Prices spiked from record lows under $2 per mmBtu in 2020 to record highs of $56 in October 2021. Wael Sawan, integrated gas, renewables, and energy solutions director of the largest producer of LNG in the world, said, “Last year showed just how crucial gas and LNG are in providing communities around the world with energy.”

Prices continue to soar in reaction to rising risks of supply disruptions.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

The base case for investing in natural gas and LNG assets has been clearly strengthened with the measures being taken against Russia; the ongoing conversion to gas-powered electrical grids in lieu of coal; and the fact that gas is clean, abundant, and doesn’t pose a major risk to the environment in the event of an accident at sea or at a terminal.

Now, I agree with Bryan; there is certainly a bullish case to be made for natural gas in 2022, and there are a number of bullish assets that could contribute to the trend this year. A few of the potential investment opportunities, as Bryan pointed out, include…

  • Exploration and Production (E&P) companies that bring natural gas to the market.
  • Pipeline companies that bring natural gas to LNG terminals.
  • LNG processing companies that convert natural gas into LNG, ready for export.
  • LNG shipping companies that transport LNG around the world.
  • LNG degasification companies that warm LNG upon arrival and transfer it into connecting pipelines.

What many folks don’t realize is that natural gas is used for so much more than household electricity, heating and cooling. It’s also vital to the production of many products, including chemicals, glass, paper, and fertilizers. The latter is particularly interesting, as natural gas is a major input for nitrogen fertilizer—and that brings us to our second inflation sector.

Inflation Sector #2: Fertilizers & Food Staples

Nitrogen fertilizer is the most commonly used fertilizer in the world, while ammonia, phosphorous, and potash are other popular fertilizers. Fertilizers are primarily used for growing six major crops, with corn, wheat, rice, vegetables, fruits, and soybeans accounting for about two-thirds of global fertilizer demand. Given that the U.S. is the largest grower of corn, soybeans, and wheat, it’s not too surprising that the U.S. is also the biggest consumer of fertilizer in the world.

So, as we approached the growing season here in the U.S., strong demand and high natural gas prices were already driving up the prices of fertilizers prior to Russia invading the Ukraine in March. In fact, the American Farm Bureau Federation reported that fertilizer prices were pushing back toward the record highs of 2008.

Of course, the Russia-Ukraine conflict has only further exacerbated the rise in fertilizer prices, as Russia accounted for nearly one-fifth of fertilizer exports last year. This coupled with the recent surge in natural gas prices is one of the reasons why prices for nitrogen fertilizer ammonia have jumped to a record high of $1,625 per metric ton recently.

And with rising fertilizer prices, comes rising food prices.

I think we can all attest to the fact that grocery bills have skyrocketed in 2022. The latest Consumer Price Index (CPI) revealed that food prices jumped 1%, while food-at-home prices increased 1.4% in February. That marked the biggest monthly gain since April 2020. According to the U.S. Department of Agriculture (USDA), food prices will remain elevated for the foreseeable future.

The USDA now expects all food prices to rise between 4.5% and 5.5% in 2022. Food-at-home prices are anticipated to increase between 3% and 4%, while food-away-from-home prices are forecast to jump between 5.5% and 6.5%.

The Russia-Ukraine conflict has certainly been a big driver of rising food prices of late, not only because of it boosting natural gas and fertilizer prices but also because the Ukraine is largely considered the “breadbasket” of Europe. The Ukraine and Russia account for approximately 30% of global wheat exports, and the Ukraine recently halted its wheat exports to better meet the needs of its people during the current conflict.

Ivan Martchev, an Investment Strategist with Navellier & Associates, recently commented…

Now we have sanctions on one of the largest commodity producers—Russia—which invaded a large agricultural commodity producer, Ukraine. About 25% of the global wheat supply is in danger and, given that the soybean harvest in Brazil is unlikely to be very good, substitution of one commodity for another is unlikely. Put starkly, 13% of global calories are about to disappear.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Wheat and soybeans are headed for all-time highs—and they’re not the only food staple breaking through to new all-time highs.

Here in the U.S., another crisis is evolving and driving up poultry and egg prices: a bird-flu outbreak has caused the death of more than 17 million birds, including more than 11 million egg-laying chickens. The USDA reports that approximately 3% of the U.S.’s chicken population has died from the disease or been euthanized due to the disease. In turn, egg prices have soared 52% in the past two months alone.

The bottom line: Soaring natural gas prices have led to surging fertilizer prices, and both of which are pushing up the prices of food prices globally. To help offset the surge in prices at the grocery store, food staples companies and fertilizer companies—those upping shipments in an attempt to make up for the decline in fertilizer exports from Russia—are tempting investment opportunities today.

Inflation Sector #3: Crude Oil

In addition to the surge in natural gas prices, crude oil prices have also bounced higher in the wake of the Russia-Ukraine conflict.

Crude oil prices surged to more than $120 per barrel on March 8 before pulling back to about $95 per barrel on March 16. Prices, though, have started to resume their climb higher, breaking back above $100 per barrel. And crude oil prices should remain elevated as we head into the summer driving season, even with the U.S. releasing oil from the strategic reserves.

Ivan Martchev also noted in his article from March 29 that the 2008 high in commodities is in play…

The year 2008 does not bring fond memories in its latter half, but in the middle of the year, commodity traders sure did have a lot of fun with oil and all kinds of other commodities going parabolic—like crude oil near $150 a barrel—the sort of way commodities are acting now.

WTI crude closed last week at $114 a barrel, so the 2008 high is in play, contingent of course on how the Ukrainian crisis plays out. A speedy conclusion of the war, which right now seems unlikely, would mean a relief sell-off in the commodity indexes and a continued relief rally in stocks—while a deterioration of the situation in Ukraine means the opposite.

 

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

“Energized” by a triple-digit oil price, energy stocks probably have further to run. The NYSE Oil Index (XOI) ended its underperformance against the S&P 500 in late 2020. After years of under-investment in production and assault by the ESG crowd, including Biden administration policies that encourage green investments, the stocks are on fire, catalyzed by the Ukraine crisis.

I am all for protecting the environment and going green, but not at the cost of driving the U.S. and global economy into a recession because of botched decarbonization practices. One way to get more oil onto the market is to approve the Keystone pipeline.

Energy companies have been right to be more conservative in development of new projects as shareholders have demanded the return of capital, while the industry got shell-shocked by a negative oil price two years ago. I think the Biden Administration, if it does not want disastrous results in the coming November midterm elections, needs to flesh out a smarter energy policy, as it would be hard to pin inflation and surging gasoline prices on Vladimir Putin alone.

What’s interesting is that the Biden administration still opposes the Keystone pipeline, but it’s knocking on Canada’s door now for its “dirty” oil. The hope is that Canada will export more oil via railways or boost existing pipeline capacity. It will be interesting to see how the situation plays out, as pipelines are already near capacity and Canada is not keen on exporting oil on railways. Canadian officials know the Keystone pipeline is the better, more efficient option—and I’m betting they’re still a bit angry about the U.S. canceling the pipeline.

In the meantime, the U.S. is also starting to take steps to become energy independent again. With imports of Russian oil now banned, the Biden administration is encouraging domestic oil producers to increase their supplies. The Energy Information Administration (EIA) reported that domestic crude oil production dipped to 11.2 million barrels per day (bpd) in 2021, which was down from 12.3 million bpd in 2020. The EIA anticipates output could reach 12 million bpd this year, but it will be 2023 until it rises back to record levels of 13 million bpd.

So, crude oil prices are set to remain elevated in the near term, even with the recent release from the strategic reserves. Companies that are able to profit from rising energy prices, as well as an increase in crude oil production domestically, may be viable investment opportunities in 2022.

Inflation Sector #4: Building Materials

If you’ve attempted any home renovation project over the past two years, then you’ve likely experienced the surge in prices for building materials firsthand. Lumber prices, in particular, shot through the roof—and quickly became a popular choice for memes…

 

All jokes aside, building material prices are sky-high.

Lumber prices broke through $1,515 per thousand board feet in the spring of 2021. Prices moderated and bottomed around $389 per thousand board feet in August. But lumber prices have been climbing steadily higher, with prices rising to $915 per thousand board feet in December and back above $1,200 per thousand board feet in the wake of the Russia-Ukraine conflict.

Lumber prices moderated a bit in March, as higher mortgage rates let a little air out of the housing bubble here in the U.S. Still, even after pulling back from the mid-March high of $1,357 per thousand board feet, prices are still elevated at around $1,000 per thousand board feet.

Now, there is some speculation that lumber prices will retreat in the wake of the Federal Reserve’s recent and upcoming rate hikes, as it’s anticipated to continue to boost mortgage rates and cool off the housing market. But spring is also the busy homebuilding season, and lumber prices will likely remain elevated as demand picks back up this year.

I should add that lumber isn’t the only building material that’s experienced a surge in prices of late. Building materials prices rose nearly 16% last year—and have soared 18.6% since December 2020. The latest Producer Price Index (PPI) also revealed that construction material prices have climbed 29% in the past 12 months. As an example of what’s driving overall building materials higher…

  • Gypsum products, which include drywall, ceiling tiles, building blocks, and the like, saw an 18.2% jump in prices in 2021.
  • Steel mill product prices have surged more than 150% since August 2020.
  • Prices for ready-mix concrete have increased more than 9% since January 2020.
  • Interior and exterior paint prices rose 10.9% and 19.8%, respectively, in 2021.

Clearly, building material prices across the board are sitting at elevated levels. We may see prices moderate a bit if the housing market cools in the wake of key interest rate hikes. But, right now, there’s certainly a case to be made for investing in companies that can profit from higher material prices.

Inflation Sector #5: Marine Shipping

When the world reopened its doors in the wake of the COVID-19 pandemic lockdowns, surging demand to restock shelves created congestion in the world’s biggest ports—a problem that has persisted throughout 2021 and into 2022.

The Port of Los Angeles is the busiest port in North America, and it experienced nearly a 16% surge in container volume in 2021. At times, there have been a record number of containerships at anchor waiting to be unloaded at the port. Back in November, the backlog still totaled a record 86 containerships, and more recently, there were approximately 70 ships waiting to be unloaded at the Ports of Los Angeles and Long Beach in mid-February.

Port congestion isn’t just a problem here in the U.S. either. Recently, the Port of Shanghai, which is one of the busiest ports in the world, experienced a surge in containerships anchored offshore due to a new stage of COVID-19 lockdown restrictions in Shanghai. More than 300 ships were waiting to be unloaded at the port at the end of March.

In addition to port congestion, a massive container shortage added more stress to an already over-stressed shipping industry. The reality is that the essential building block of global trade is jammed up on idling containerships and stacked up at overwhelmed ports and distribution centers. It also didn’t help that container production was practically halted during the pandemic, and manufacturers had to scurry to meet rising demand.

The combination of port bottlenecks, supply shortages and a lack of containers drove container and shipping prices to the sky. At the end of 2021, the cost to ship a 40-foot container from China to the West Coast of the U.S. was between $10,000 and $15,000, or five-times pre-pandemic rates. As a result, many shipping and containership companies made money hand-over-fist in 2021.

According to the Journal of Commerce, the containership industry earned $25.4 billion in 2020. That number surged to about $150 billion in 2021. Analysts are expecting even more money to be made in the containership industry in 2022. I tend to agree, as containership prices should remain high in 2022 due to the suspensions at the Shanghai port and ongoing supply chain glitches.

So, this year is anticipated to be another strong one for shipping companies, especially containership operators around the world. And investing in companies that are benefiting from higher shipping costs could be a great financial decision in 2022.

Bonus Inflation Sector: Semiconductors

Now, before we wrap up this special report today, there is one more industry that has continued to prosper despite soaring inflation and Wall Street pundits claiming tech stocks are “dead in the water” in a rising interest rate environment: semiconductors.

The fact is many semiconductor companies have massive backlogs and pricing power—and as a result, they’ve continued to prosper in the current environment.

You may already know this; semiconductors are used in practically everything. In fact, this year’s Consumer Electronics Show (CES) revealed that the latest and greatest products—like televisions, virtual reality, video games, 5G, and electric vehicles—now require more high-powered chips than ever before. Consider this…

Artificial Intelligence: According to McKinsey & Company, by 2025, AI-related semiconductors could add up to nearly 20% of all chip demand, amounting to approximately $67 billion in revenue. AI-specific chips could see 18% annual growth over the next five years, which is approximately five times more than the rate for non-AI applications.

Cybersecurity: Thwarting cyberattacks is more than just having anti-virus protection, firewalls and threat detection software. Flawed chips can also make everything from smartphones to data centers more vulnerable to cyber threats and hacks. That’s why it’s vital for the latest generation of chips to be developed with more secure designs, and for companies to eliminate flaws in semiconductor designs.

5G: 5G phones actually have 30% to 40% more semiconductor chips than previous models.[2] The continued launch of 5G-enabled smartphones is expected to create even more demand for chips, with the global 5G semiconductor solutions market anticipated to reach $10.8 billion by 2029. That represents a compounded annual growth rate of 24.5%.

Electric Vehicles: Semiconductors are vital to the operation of all vehicles, as they’re used in safety features, displays, vehicle controls, sensing and more. EVs require even more semiconductors than their internal combustion engine (ICE) peers. In fact, according to a study by IDTechEx, EVs utilize twice as many semiconductors as ICE vehicles, with up to 2,000 to 3,000 chips used in EVs.

Considering all this, is it any wonder that semiconductor demand is skyrocketing?

Even amidst the semiconductor shortage in 2021, the semiconductor market continued to expand. The Semiconductor Industry Association (SIA) even reported that global semiconductor industry sales were $555.9 billion in 2021, or 26.2% annual growth. The total number of semiconductors shipped in 2021 reached 1.15 trillion, or the highest-ever annual total.

Early results in 2022 show that the semiconductor industry remains red-hot, with demand and sales still high. SIA recently reported that global semiconductor industry sales were $50.7 billion in January 2022, which represented a 26.8% year-over-year increase.

Makes you wonder how high sales will soar once supply chains operate more normally.

Currently, industry experts are anticipating that semiconductor sales will rise 9% in 2022, with sales breaking through the $600 billion level for the first time. Overall, the global semiconductor market is forecast to grow from $425.96 billion in 2020 to $803.15 billion in 2028. But as more and more companies boost their chip production to meet rising demand, we could see the semiconductor market exceed these forecasts.

Personally, I’ve always been fan of companies that provide the “picks and shovels” to a hot trend or industry. Think back to the California Gold Rush in the 1850s. The folks that sold picks, shovels and jeans to aspiring miners made more money than the vast majority of gold miners trying to get rich in mining.

So, there’s something to be said about investing in semiconductor companies in 2022, as they’re supporting a lot of the hottest technology trends and should continue to experience exponential growth.

The Path to Prosperity in 2022

Considering our discussion today, I think it’s unwise to let the financial media scare you out of the market and to bet against growth stocks, especially fundamentally superior stocks that are prospering in a more inflationary environment.

My fascination with growth stocks started back in the late 1970s during my college years at Cal State Hayward. I wanted to uncover how to beat the market without taking on too much risk—and what I discovered was that a select group of stocks can consistently outperform the S&P 500: stocks with superior fundamentals.

Today, I’m a self-proclaimed “number guys” because the numbers do not lie—and right now, the numbers are telling me that fundamentally superior stocks—especially oil and natural gas, building materials, food staples, shipping and fertilizer stocks as well as semiconductor companies with massive backlogs and pricing power—should continue to appreciate handsomely throughout 2022 despite the more inflationary environment.

Our best defense is a strong offense of fundamentally superior, inflation-proof growth stocks.

Let me break it down for you…

Here at Navellier & Associates, we believe in the power of a well-balanced portfolio. It can literally neutralize the stock market’s uncertainty and take advantage of unique growth opportunities the market throws our way. That’s why we encourage our clients to take a diversified approach to managing their investments—one that can include growth, income, and capital preservation strategies.

Growth Portfolios

These portfolios feature companies that are committed to growing their sales and earnings. Our growth portfolios are segmented by market capitalization, are actively managed, and seek inefficiently priced growth stocks with opportunities for long-term price appreciation. We screen for small- and large-cap companies that are consistently growing sales and earnings. Our team actively manages this portfolio to find undervalued growth stocks.

Income Portfolios

These offerings provide dividend growth and income opportunities with capital appreciation. At Navellier, our dividend and income portfolios strive for portfolio growth through securities with capital appreciation, strong dividend growth, and income opportunities. We seek out companies that have a history of growing and paying dividends. Most, importantly, these dividend-paying companies have free cash flow to cover each dividend payment. This can it make it much easier to have reliable income in retirement.

Capital Preservation/Defensive Portfolios

These portfolios aim to outperform in up markets and limit losses in declining markets by moving to cash or bonds. This asset allocation plan allows investors to play defense in a declining market. Our capital preservation strategies can help you mitigate steep market losses with defensive ETFs and covered calls. Defensive ETFs can serve this need as they shift to cash or bonds when conditions permit.

When you add up everything we have discussed today, you can quickly see the importance of having a diversified approach to managing your investments—one that can include growth, income, and capital preservation strategies. The power of a well-balanced portfolio cannot be overstated.

When you dive deeper into the details of our exclusive portfolios and strategies, you will see that many of them cross boundaries and can be combined to form an overall portfolio strategy. That portfolio can then be customized to your personal financial goals and risk tolerance.

To build a personal portfolio that strives to deliver returns, it is important to think about things such as your retirement goals, how long you have to reach those goals, and what your risk tolerance is … just to name a few.

At Navellier & Associates, our team is here for you. We will work with you to answer these questions and discuss a customized solution tailored specifically towards you and your retirement goals.

Right now, we have a very bullish outlook for 2022. As we just discussed, our best defense in an environment of persistently higher prices is a strong offense of fundamentally superior inflation hedges. Investors are already starting to pour into these stocks—and we can help you build a personal portfolio that will also prosper in this environment.

In fact, here’s a sneak peek at how we select stocks for each of our custom portfolio offerings…

Our Proprietary 3-Step Stock Selection Process

At Navellier & Associates, our system was built to find inefficiency in the market, uncover what we think are the market’s best growth stocks, and utilize a disciplined quantitative and fundamental analysis system to create a customized portfolio for individual investors.

Consider an example of the three-step proprietary stock-selection process that we utilize for most portfolios:

  1. Quantitative Analysis: Using our proprietary screening process, we measure reward (alpha) and risk (standard deviation) indicators to the appropriate market capitalization range for each portfolio. We rank stocks based on the reward/risk measure and reduce the initial investment universe to a select bucket of stocks that fall into the upper percentiles of the reward/risk measure.
  2. Fundamental Analysis: We then apply fundamental variable screens to the stocks with the highest reward/risk measures. This shines the spotlight on which companies have exceptional profit margins, excellent earnings growth (and positive earnings surprise potential!) and reasonable price/earnings ratios (based on expected future earnings).
  3. Securities Optimization: We use a proprietary optimization model to maximize alpha, while minimizing portfolio standard deviation. This can efficiently allocate the stocks and create portfolios that are well diversified across sectors and industries.

Primarily, our goal with the three-step stock selection process is to develop portfolios that have a low correlation to their benchmarks, increasing diversification, decreasing risk, and maximizing profits for investors like you.

We’re only three months into 2022—and the year has had a bit of a shaky start. But in our opinion, 2022 should shape up to be a great one for all of us here at Navellier. The stock market is narrowing, investors are growing more selective, and growth stocks that can thrive in an inflationary environment are attracting a lot of attention. So, we believe that now could be a good time for you to have a custom investment strategy that focuses on your financial goals and risk tolerance, as well as diversification.

Navellier & Associates can help you build your own customized portfolio strategy. We rely on our extensive research, trend analysis, customized strategies, and historic market knowledge to manage our client-only portfolios and help our clients take advantage of opportunities that are presented by market corrections—short and long-term—as well as raging bull market situations.

Our proprietary models are built to work on U.S.-based portfolios with a minimum account value of $250,000. If your portfolio meets these criteria, please contact my Navellier & Associates team. They are standing by ready to discuss your personal portfolio and investment strategy to help you make the most of 2022.

Schedule Your Portfolio Review Today

Need some help determining if your portfolio is well-balanced? We can help!

The first step is contacting us to set up a no-obligation portfolio review. This is our opportunity to get to know you a bit more. And don’t worry, there is never a charge for this portfolio review. If you decide you would like Navellier & Associates to manage your portfolio—or one aspect of your portfolio—we will discuss any management fees for that service.

If you decide you’d like to continue to manage things yourself, we hope that we gave you some important information to consider during your portfolio review.

We are not here to simply preach to you, but rather share information that we have gained from our extensive market research and analysis. We also want to know about you so that we can make the right suggestions for your personal situation.

Click here now to schedule your no-obligation portfolio review.

I’m confident that Navellier & Associates can help guide you to build a portfolio to navigate the current environment and help you achieve your individual financial goals in 2022.

All the best to you and yours,

Louis Navellier
Chief Investment Officer
Navellier & Associates, Inc. Private Client Group

Claim Your No-Obligation Personal Portfolio Review

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About Louis Navellier

My name is Louis Navellier and I’m most widely known as an investment adviser and market analyst. Since 1980, I’ve been publishing my quantitative analysis on growth stocks and I’ve made it my life’s work to continuously refine and develop my analysis for investors like you.

My research and analysis have led to regular appearances on CNBC and Fox Business News and I am frequently quoted by MarketWatch and Bloomberg.

I also manage money for private and institutional clients through my money management company, Navellier & Associates, Inc.

Wealthy individuals and institutional investors want access to my 30+ years of quantitative research experience.

Our work with these professionals requires tight controls on investment risk and an exhaustive due diligence process.

The overall goal for our clients focuses on how we will achieve steady, long-term returns in up and down markets.

At Navellier & Associates, our proprietary quantitative models are designed to balance stocks, mutual funds, and income producing investments to maximize returns while controlling risk.

And today, I’m thrilled to give you the opportunity to put this same rigorous screening criteria and quantitative and fundamental analysis to work for your portfolio. For U.S.-based portfolios from $250,000 to $100+ million — my firm is here to help.

IMPORTANT DISCLOSURES

Any holdings identified do not represent all of the securities purchased, sold, or recommended for advisory clients and it should not be assumed that investments in securities identified and described were or would be profitable. Performance results presented herein do not necessarily indicate future performance. Results presented include reinvestment of all dividends and other earnings. Investment in equity strategies involves substantial risk and has the potential for partial or complete loss of funds invested. Investment in fixed income components has the potential for the investment return and principal value of an investment to fluctuate so that an investor’s shares, when redeemed, may be worth less than their original cost. It should not be assumed that any securities recommendations made by Navellier & Associates, Inc. in the future will be profitable or equal the performance of securities mentioned in this report.

This report is for informational purposes and is not to be construed as an offer to buy or sell any financial instruments and should not be relied upon as the sole factor in an investment making decision. The views and opinions expressed are those of Navellier at the time of publication and are subject to change. There is no guarantee that these views will come to pass. As with all investments there are associated inherent risks. Please obtain and review all financial material carefully before investing. Although the information in this communication is believed to be materially correct, no representation or warranty is given as to the accuracy of any of the information provided. Certain information included in this communication is based on information obtained from sources considered to be reliable. However, any projections or analysis provided to assist the recipient of this communication in evaluating the matters described herein may be based on subjective assessments and assumptions and may use one among alternative methodologies that produce different results. Accordingly, any projections or analysis should not be viewed as factual and should not be relied upon as an accurate prediction of future results. Furthermore, to the extent permitted by law, neither Navellier nor any of its affiliates, agents, or service providers assumes any liability or responsibility nor owes any duty of care for any consequences of any person acting or refraining to act in reliance on the information contained in this communication or for any decision based on it. Opinions, estimates, and forecasts may be changed without notice. The views and opinions expressed are provided for general information only.

The S&P 500 Index consists of 500 stocks chosen for market size, liquidity and industry group representation. It is a market value weighted index with each stock ’s weight in the index proportionate to its market value. The reported returns reflect a total return for each quarter inclusive of dividends. Presentation of index data does not reflect a belief by Navellier that any stock index constitutes an investment alternative to any Navellier equity strategy presented in these materials, or is necessarily comparable to such strategies and an investor cannot invest directly in an index. Among the most important differences between the indexes and Navellier strategies are that the Navellier equity strategies may (1) incur material management fees, (2) concentrate investments in relatively few ETFs, industries, or sectors, (3) have significantly greater trading activity and related costs, and (4) be significantly more or less volatile than the indexes. All indexes are unmanaged and performance of the indices includes reinvestment of dividends and interest income, unless otherwise noted, are not illustrative of any particular investment and an investment cannot be made in any index.FactSet Disclosure: Navellier does not independently calculate the statistical information included in the attached report. The calculation and the information are provided by FactSet, a company not related to Navellier. Although information contained in the report has been obtained from FactSet and is based on sources Navellier believes to be reliable, Navellier does not guarantee its accuracy, and it may be incomplete or condensed.

The report and the related FactSet sourced information are provided on an “as is” basis. The user assumes the entire risk of any use made of this information. Investors should consider the report as only a single factor in making their investment decision. The report is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. FactSet sourced information is the exclusive property of FactSet. Without prior written permission of FactSet, this information may not be reproduced, disseminated or used to create any financial products. All indices are unmanaged and performance of the indices include reinvestment of dividends and interest income, unless otherwise noted, are not illustrative of any particular investment and an investment cannot be made in any index. Past performance is no guarantee of future results.

Mapsignals Disclosure: Jason Bodner is a co-founder and co-owner of Mapsignals.com, a Developed Factor Model for isolating outlier stocks using its proprietary quantitative equity selection methodology. Mapsignals was founded in 2014. Data used by Mapsignals, for periods prior to its founding in 2014, is data derived from Factset. Mr. Bodner is an independent contractor who is occasionally hired to write articles and provide his editorial comments and opinions. Mr. Bodner is not employed by Navellier & Associates, Inc., or any other Navellier owned entity. The opinions and statements made in this article are those of Mr. Bodner and not necessarily those of any other persons or entities. Jason Bodner is a co-founder and co-owner of Mapsignals. Mr. Bodner is an independent contractor who is occasionally hired by Navellier & Associates to write an article and or provide opinions for possible use in articles that appear in Navellier & Associates weekly Market Mail. Mr. Bodner is not employed or affiliated with Louis Navellier, Navellier & Associates, Inc., or any other Navellier owned entity. The opinions and statements made here are those of Mr. Bodner and not necessarily those of any other persons or entities. This is not an endorsement, or solicitation or testimonial or investment advice regarding the BMI Index or any statements or recommendations or analysis in the article or the BMI Index or Mapsignals or its products or strategies.

The views and opinions expressed do not constitute specific tax, legal, or investment or financial advice to, or recommendations for, any person, and the material is not intended to provide financial or investment advice and does not take into account the particular financial circumstances of individual investors. Before investing in any investment product, investors should consult their financial or tax advisor, accountant, or attorney with regard to their specific situation.

Please note that Navellier & Associates and the Navellier Private Client Group are managed completely independent of the newsletters owned and published by InvestorPlace Media, LLC and written and edited by Louis Navellier, and investment performance of the newsletters should in no way be considered indicative of potential future investment performance for any Navellier & Associates product.

1. Compliance Statement – Navellier & Associates Inc. claims compliance with the Global investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. Navellier & Associates Inc. has been independently verified for the periods January 1, 1995 through December 31, 2020. A firm that claims compliance with the GIPS standards must establish policies and procedures for complying with all the applicable requirements of the GIPS standards. Verification provides assurance on whether the firm’s policies and procedures related to composite and pooled fund maintenance, as well as the calculation, presentation, and distribution of performance, have been designed in compliance with the GIPS standards and have been implemented on a firm-wide basis. The Navellier Large Cap Growth Composite has had a performance examination for the periods September 1, 1998 through December 31, 2020. The verification and performance examination reports are available upon request.”

2. Definition of Firm – Navellier & Associates, Inc. is a registered investment adviser established in 1987. Registration does not imply a certain level of skill or training. Navellier & Associates, Inc. manages a variety of equity assets for primarily U.S. and Canadian institutional and retail clients. The firm’s list of composite descriptions as well as information regarding the firm’s policies for valuing investments, calculating performance, and preparing GIPS reports are available upon request.

3. Composite Description – The composite creation date is March 31, 2005. As of October 1, 2019, the Navellier Large Cap Growth strategy was redefined to include both wrap and institutional accounts to more broadly market the strategy. Prior to this date, only wrap accounts were included in the composite. The Large Cap Growth Composite name changed from the Large Cap Growth Wrap Composite to the Large Cap Growth Composite. The Navellier Large Cap Growth Composite includes all discretionary Large Cap Growth equity accounts that are managed with similar objectives for a full month, including those accounts no longer with the firm. The strategy is designed for aggressive investors seeking capital appreciation from well established companies and seeks to achieve the highest possible returns while controlling risk. The strategy invests in U.S. listed securities with market capitalizations greater than $1 billion. At any given time, the strategy may hold up to 15% in American Depositary Receipts (ADRs). Typically, the strategy invests in approximately 40-50 stocks that pass Navellier’s stringent quantitative and fundamental criteria. Performance figures that are net of fees take into account advisory fees, wrap fees, foreign withholding tax and any brokerage fees or commissions that have been deducted from the account. “Pure” gross-of-fees returns do not reflect the deduction of any trading costs, fees, or expenses, and are presented only as supplemental information. Performance results are total returns and include the reinvestment of all income, including dividends. The composite inception date is September 1, 1998. Valuations and returns are computed and stated in U.S. Dollars.

4. Management Fees – The management fee schedule for accounts ranges from 0.30% to 1.25% of assets under management; however, some incentive fee, fixed fee, and fulcrum fee accounts may be included. Fees are negotiable, and not all accounts included in the composite are charged the same rate. Wrap fee schedules are provided by independent wrap sponsors and are available upon request from the respective wrap sponsor. Wrap fees generally range from 100 to 200 basis points and include custody, trading expenses, and other expenses associated with the management of the account. There are zero commissions accounts included in the composite. The client is referred to the firm’s Form ADV Part 2A for a full disclosure of the fee schedule. Net performance is calculated using actual fees.

5. Composite Dispersion – If applicable, the dispersion of annual returns is measured by the standard deviation across asset-weighted portfolio level gross returns represented within the composite for the full year.

6. Benchmark – The primary benchmark for the composite is the Russell 1000® Growth Index. The Russell 1000® Growth Index measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values. The secondary benchmark for the composite is the S&P 500 Index, which measures the performance of the 500 leading companies in leading industries of the U.S. economy, focuses on the large cap segment of the market, with approximately 75% coverage of U.S. equities. These indices are considered reasonable measures of the performance of the large cap, growth oriented U.S. companies. The returns for the Russell 1000® Growth and S&P 500 indices include the reinvestment of any dividends. The asset mix of large cap growth equity accounts may not be precisely comparable to the presented indices. Presentation of index data does not reflect a belief by the Firm that the Russell 1000® Growth or S&P 500 indices, or any other index, constitutes an investment alternative to any investment strategy presented in these materials or is necessarily comparable to such strategies.

7. General Disclosure – GIPS® is a registered trademark of CFA Institute. CFA Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the content contained herein. The three-year annualized standard deviation measures the variability of the gross composite and the benchmark returns over the preceding 36-month period. Actual results may differ from composite results depending upon the size of the account, custodian related costs, the inception date of the account and other factors. Past performance does not guarantee future results. Investment in equity strategies involves substantial risk and has the potential for partial or complete loss of funds invested. Results presented include reinvestment of all dividends and other earnings. The securities identified and described do not represent all of the securities purchased, sold, or recommended for client accounts. It should not be assumed that any securities recommendations made by Navellier & Associates, Inc. in the future will be profitable or equal the performance of securities made in this report. A list of recommendations made by Navellier & Associates, Inc. for the preceding twelve months is available upon request.

1. Compliance Statement – Navellier & Associates Inc. claims compliance with the Global investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. Navellier & Associates Inc. has been independently verified for the periods January 1, 1995 through December 31, 2020. A firm that claims compliance with the GIPS standards must establish policies and procedures for complying with all the applicable requirements of the GIPS standards. Verification provides assurance on whether the firm’s policies and procedures related to composite and pooled fund maintenance, as well as the calculation, presentation, and distribution of performance, have been designed in compliance with the GIPS standards and have been implemented on a firm-wide basis. The Navellier Power Dividend Composite has had a performance examination for the periods January 1, 2015 through December 31, 2020. The verification and performance examination reports are available upon request.”

2. Definition of Firm – Navellier & Associates, Inc. is a registered investment adviser established in 1987. Registration does not imply a certain level of skill or training. Navellier & Associates, Inc. manages a variety of equity assets for primarily U.S. and Canadian institutional and retail clients. The firm’s list of composite descriptions as well as information regarding the firm’s policies for valuing investments, calculating performance, and preparing GIPS reports are available upon request.

3. Composite Description – The composite creation date is March 31, 2006. As of October 1, 2019, the Navellier Power Dividend strategy was redefined to include both wrap and institutional accounts to more broadly market the strategy. Prior to this date, only wrap accounts were included in the composite. The Power Dividend Composite name changed from the Power Dividend Wrap Composite to the Power Dividend Composite. The Navellier Power Dividend Composite includes all discretionary Power Dividend equity accounts and are managed with similar objectives for a full month, including those accounts no longer with the firm. The strategy is designed for aggressive investors seeking to capitalize on the best opportunities within the group of publicly traded companies that pay dividends. The strategy invests in U.S. listed securities with market capitalizations greater than $250 million that pay dividends. Statistical measures may be used in an attempt to identify unusual price movements in individual stock prices, which may result in higher-than-average turnover and cash positions for the portfolio. At any given time, the strategy may hold up to 15% in American Depositary Receipts (ADRs). Stocks in the strategy typically exhibit positive return on equity and positive return on assets, usually have higher free cash flow than what they pay in dividends, and are usually growing dividends faster than the rate of inflation. Typically, the strategy invests in approximately 15 to 30 stocks. The strategy may invest in smaller capitalization stocks that may trade fewer shares than larger capitalization stocks; the liquidity risk among these types of stocks may increase the strategy’s risk. Performance figures that are net of fees take into account advisory fees, wrap fees, foreign withholding tax, and any brokerage fees or commissions that have been deducted from the account. “Pure” gross-of-fees returns do not reflect the deduction of any trading costs, fees, or expenses, and are presented only as supplemental information. Performance results are total returns and include the reinvestment of all income, including dividends. The composite inception date is January 1, 2006. Valuations and returns are computed and stated in U.S. Dollars.

4. Management Fees – The management fee schedule for accounts ranges from 0.30% to 1.25% of assets under management; however, some incentive fee, fixed fee, and fulcrum fee accounts may be included. Wrap fee schedules are provided by independent wrap sponsors and are available upon request from the respective wrap sponsor. Wrap fees generally range from 100 to 200 basis points and include custody, trading expenses, and other expenses associated with the management of the account. There are zero commissions accounts included in the composite. The client is referred to the firm’s Form ADV Part 2A for a full disclosure of the fee schedule. Net performance is calculated using actual fees.5. Composite Dispersion – If applicable, the dispersion of annual returns is measured by the standard deviation across asset-weighted portfolio level gross returns represented within the composite for the full year.

6. Benchmark – The primary benchmark for the composite is the Russell 3000® Index. The Russell 3000® Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the investable U.S. equity market. The secondary benchmark for the composite is the Standard & Poor 500 Index (“S&P 500 Index”). The S&P 500 Index measures the performance of approximately 500 companies listed on U.S. stock exchanges selected by Standard & Poor. These indices are considered reasonable measures of the general performance of the broad U.S. equity market. The returns for the Russell 3000® and S&P 500 indices include the reinvestment of any dividends. The asset mix of Navellier Power Dividend equity accounts may not be precisely comparable to the presented indices. Presentation of index data does not reflect a belief by the Firm that the Russell 3000® or S&P 500 indices, or any other index, constitutes an investment alternative to any investment strategy presented in these materials or is necessarily comparable to such strategies. As of June 2012, the Russell 3000 Index is listed as the primary benchmark because it is a better representation of the investment strategy. The S&P 500 Index has replaced the Russell 1000 Index as the secondary benchmark.

7. General Disclosure – GIPS® is a registered trademark of CFA Institute. CFA Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the content contained herein. The three-year annualized standard deviation measures the variability of the gross composite and the benchmark returns over the preceding 36-month period. Actual results may differ from composite results depending upon the size of the account, custodian related costs, the inception date of the account and other factors. Past performance does not guarantee future results. Investment in equity strategies involves substantial risk and has the potential for partial or complete loss of funds invested. Results presented include reinvestment of all dividends and other earnings. The securities identified and described do not represent all of the securities purchased, sold, or recommended for client accounts. It should not be assumed that any securities recommendations made by Navellier & Associates, Inc. in the future will be profitable or equal the performance of securities made in this report. A list of recommendations made by Navellier & Associates, Inc. for the preceding twelve months is available upon request.

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Please note that Navellier & Associates and The Navellier Private Client Group are managed completely independent of the newsletters owned and published by InvestorPlace Media, LLC and written by Louis Navellier, and investment performance of the newsletters should in no way be considered indicative of potential future investment performance for any Navellier & Associates product.

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Past performance does not guarantee future results. Investment in equity strategies involves substantial risk and has the potential for partial or complete loss of funds invested. Investment in fixed income components has the potential for the investment return and principal value of an investment to fluctuate so that an investor’s shares, when redeemed, may be worth less than their original cost.

IMPORTANT NEWSLETTER DISCLOSURE: The hypothetical performance results for investment newsletters that are authored or edited by Louis Navellier, including Louis Navellier’s Growth Investor, Louis Navellier’s Breakthrough Stocks, Louis Navellier’s Accelerated Profits, and Louis Navellier’s Platinum Club, are not based on any actual securities trading, portfolio, or accounts, and the newsletters reported hypothetical performances should be considered mere “paper” or proforma hypothetical performance results and are not actual performance of real world trades. Navellier & Associates, Inc. does not have any relation to or affiliation with the owner of these newsletters. There are material differences between Navellier Investment Products’ portfolios and the InvestorPlace Media, LLC newsletter portfolios authored by Louis Navellier. The InvestorPlace Media, LLC newsletters contain hypothetical performance that do not include transaction costs, advisory fees, or other fees a client might incur if actual investments and trades were being made by an investor. As a result, newsletter performance should not be used to evaluate Navellier Investment services which are separate and different from the newsletters. The owner of the newsletters is InvestorPlace Media, LLC and any questions concerning the newsletters, including any newsletter advertising or hypothetical Newsletter performance claims, (which are calculated solely by Investor Place Media and not Navellier) should be referred to InvestorPlace Media, LLC at (800) 718-8289.