Investors worried about rising inflation should buy stocks with steady costs, making them less vulnerable to swings in prices, Jefferies told clients on Thursday.
"We continue to recommend owning companies with high fixed costs over rising variable costs. Equally with valuations already discounting a significant recovery, investors should remain wary of expensive stocks," Sean Darby, chief global equity strategist, wrote in a research note.
Darby says a strong U.S. dollar is the "main headwind" for corporate earnings, as seen in a decline in foreign revenues among multinationals, while a rise in input costs, such as wages and raw materials, could further impact margins.
"The bottom line is that while a value strategy will work in the U.S., investors should keep an eye on margins and the degree of operating leverage or asset turns stocks offer. Inflation ought to mean higher and faster pricing power but it will mean a jump in costs," he said.
The following equities made Darby's list of cheap stocks with stable costs.