By Ian Salisbury

Inflation could easily become the bull market's next hurdle -- and some stocks are poised to fare much better than others.

Worries about inflation, tied to surging oil prices, have sent bond yields sharply higher this month. So far, the stock market has shrugged off the issue, with the S&P 500 only about 0.4% away from its record close. But, if elevated prices stick around, they could sort the market into winners and losers, according to Ned Davis Research.

Historically, energy has performed the best when inflation spikes. The sector beat the broad market by more than 12 percentage points annualized during periods of rising prices going back to 1972. Consumer staples (4.3 percentage points of outperformance) and healthcare (4.0 points) also did well. The worst performers were technology (-3 points), consumer discretionary (-6.4 points) and financial stocks (-11 points).

"A transition to a rising inflation regime would likely support a shift towards value. Both cyclical and defensive value sectors have tended to outperform in rising regimes, led by energy, consumer staples, healthcare, and materials," analysts Rob Anderson and Thanh Nguyen wrote last week. "In contrast, growth sectors have generally underperformed when inflation is rising."

While financials are often regarded as value stocks, rising inflation often leads to short-term interest-rate hikes. Those typically put pressure on net interest margins, a key metric for banks, according to Ned Davis Research.

What stocks can help investors best position themselves? To find out, we used FactSet to screen for energy, staples, and healthcare stocks that yield at least 3%, have a dividend payout ratio of no more than 80%, and are expected to deliver earnings growth in 2026 and 2027. The dividend payout ratio is the percentage of a company's earnings that go toward stock dividends.

We found just seven names: Energy pipeline company ONEOK; medical device maker Medtronic; and consumer companies McCormick, Target, Keurig Dr. Pepper, Philip Morris International, and Procter & Gamble.

The stock on our list with the most generous yield was ONEOK, which yields 4.6%. The company has been on a major acquisition spree over the past several years, acquiring smaller players such as Magellan, Medallion, and EnLink. Shares have jumped 24% this year. While energy stocks have benefited from higher oil and natural-gas prices since the Iran war began, pipelines tend to be somewhat insulated from price swings because they often operate on long-term contracts with producers,

Target is another winner so far in 2026, with shares up 25% year to date. Last week the big box retailer reported better-than-expected first quarter earnings and boosted its revenue outlook for the year. Target stock boasts a dividend yield of 3.6%.

Write to Ian Salisbury at ian.salisbury@barrons.com

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May 26, 2026 13:22 ET (17:22 GMT)

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