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Summary
- High government spending is likely to result in a rise in inflation
- Investors need to churn their portfolio to have some stocks which can beat inflation
The deadly global pandemic has hit businesses, economies and stock markets around the world in the past one year. Companies have been forced to shut down; employees have lost their jobs, and economies halted.
The governments are doing their bit by ploughing as much money as they can into their economies to revive them from the devastating impact of Covid pandemic. This is being done with the perspective that it props up businesses and provides support to the overall health of the economy. However, high government spending, low interest rates and rising debts might cause inflation to rise.
A rapid rise in inflation will lead to higher commodity prices, which in turn could present a significant challenge for investors. Past experiences suggest that stocks have performed relatively badly during high inflation.
But it might not be the same for all the UK shares. Below are some of the FTSE companies that can be in a better position during an inflationary environment and can be considered by the investors to beat inflation.
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Burberry Group PLC (LON: BRBY)
Luxury companies providing high-margin, expensive products, which cater to rich customers flexibility to increase in prices. Hence, British luxury fashion house Burberry could be a good choice among Brits to beat inflation.
The shares of the London, UK- headquartered company have provided 84.50 per cent return on price in the past twelve months. BRBY’s shares had closed on 18 March at GBX 2,114.00. The market capitalisation of the company stood at £8,558.36 million.
Diageo PLC (LON: DGE)
Businesses, such as Diageo, which have the ability to assign prices to their products without losing their consumers, can be among the option for investment purpose. The target customers of this high-quality drinks brand are the ones who are willing to pay any price for the products. Hence, even if inflation drives up the cost of raw materials, the company would be able to increase its prices to consumers.
The shares of the London-headquartered multinational beverage alcohol company have provided a 36.77 per cent return on price in the past twelve months. DGE’s shares had closed on 18 March at GBX 3,033.00. The market capitalisation of the company stood at £ 70,966.92 million.
Imperial Brands PLC (LON: IMB)
Tobacco stocks such as Imperial Brands can be considered by an investor because they often have high dividend yields. Imperial Brands have delivered around 9 per cent of annual dividend yield. Business with high dividend yield and a sound balance sheet often turns out to be reliable and tend to perform well over time. Hence, in case of rapid inflation sets in, dividend stocks act as a store of value.
The shares of the FTSE 100 company have provided a 9.76 per cent return on price in the past twelve months. IMB’s shares had closed on 18 March at GBX 1,439.50. The market capitalisation of the company stood at £ 13,623.54 million.
British American Tobacco (LON: BATS)
Some products belonging to the utility category, such as tobacco companies, have a lot of pricing power because consumers of such products are not necessarily worried about the cost, and they crave for their products. Hence, British American Tobacco can be looked at by investors because such companies can pass on inflation by way of price rises without losing customers.
The shares of the London, UK- headquartered British multinational company have provided a 3.20 per cent return on price in the past twelve months. BATS’ shares had closed on 18 March at GBX 2,761.50. The market capitalisation of the company stood at £ 63,365.70 million.
Rio Tinto PLC (LON: RIO)
Inflation fears tend to result in rising commodity prices. Therefore, focusing on mining could make sense for an investor because the prices of these commodities have been witnessing a rapid surge over the past few months resulting in bumper profits. The majority of this additional income earned by these companies have been passed onto investors in the form of huge dividends. Hence, an investor could think of investing in rising commodity prices to beat inflation.
The shares of the mining company have provided a 66.85 per cent return on price in the past twelve months. RIO’s shares had closed on 18 March at GBX 5,558.00. The market capitalisation of the company stood at £ 69,346.16 million.
