TSCO, BATS: Are these stocks good inflation hedges?

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TSCO, BATS: Are these stocks good inflation hedges?

 TSCO, BATS: Are these stocks good inflation hedges?
Image source: © Andreypopov | Megapixl.com

Highlights:

  • Amid the skyrocketing inflation levels, the net borrowing by the government hit £14 billion in May.
  • The interest payment on government debt also rose by 70% over May 2021. 

Inflation in the UK continues to rise at an alarming rate. In May, it reached 9.1%, the highest in the last 40 years. The high cost of living is putting a huge squeeze on household budgets across the country, and people are forced to cut down spending on non-essential items to save money to spend on essentials.

However, it's not just the household budgets that are affected by skyrocketing inflation levels. Public finances, too, are bearing the brunt of the high prices. According to the latest data released by the Office for National Statistics (ONS), the interest payments on government debt increased by 70% in May, reaching a record £7.6 billion.

On an accrued basis, this was the highest payment made in any May on record and the third highest in any single month so far.

The interest payments on government debt reached a record £7.6 billion in May.

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The net borrowing by the government hit £14 billion last month, the third-highest in May since the records began in 1993. While the borrowing was £4 billion less than May 2021, it was £8.5 billion higher than the pre-coronavirus period of May 2019.

Notably, the Bank of England has warned that inflation is expected to increase further and may reach double digits later this year. Last week, the bank raised its earlier forecast of 10% inflation to slightly more than 11%, hinting at the gloomy economic conditions that are likely to prevail.

In the current scenario, equity investors generally look for inflation hedging stocks that will safeguard their investments. The stocks they prefer have defensive properties that make them more shielded than others against inflation. Let us look at two FTSE-listed stocks that investors may consider.

Tesco Plc (LON: TSCO)

Tesco is the UK's largest supermarket chain and also a fuel forecourt operator. Soaring prices of essentials have resulted in higher profits for the company. Investors may consider the stocks of this FTSE 100 constituent as it is engaged in the business of selling essential products, which will continue to be in demand despite the high inflation.

In the 13 weeks to 28 May 2022, Tesco posted total sales of £13,572 million (excluding VAT and fuel). Shares of the company closed 0.36% lower at GBX 246.60 on Thursday, with a market cap of £18,589.28 million. The share value has increased by 11.58% over the past year but slipped by -14.94% on a year-to-date basis.

British American Tobacco Plc (LON: BATS)

The British cigarette manufacturer is the world's largest tobacco company based on net sales. Due to a steady demand regardless of the economic conditions, tobacco companies are generally the preferred choice of investors during economic gloom. British American Tobacco can easily position itself to weather the storm in the current inflationary environment due to its strong cash generation ability.

The company's shares closed at GBX 3,453.00, down by 0.75% on 23 June 2022, with a market cap of £78,644.43 million. In the last one year, the shares have given a 24.57% return to the investors. The YTD returns stand at 26.32% at present.

Note: The above content constitutes a very preliminary observation or view based on market trends and is of limited scope without any in-depth fundamental valuation or technical analysis. Any interest in stocks or sectors should be thoroughly evaluated, taking into consideration the associated risks.

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