Inflation’s rocketing in the UK. Official data has just shown prices rose at their fastest pace since 2012. Things threaten get worse too as supply chain problems intensify at home and abroad.
There are several strategies that UK share investors like me can protect their wealth however. I think the following companies could be some of the best stocks to buy as inflation pressures rise.
Protection with UK property shares
I think investing in UK property stocks is a good option as inflation increases. Not only do real estate companies see the value of their bricks-and-mortar assets improve in such an environment, they can also expect the amount they collect in rent to increase.
Tritax Big Box REIT, which provides warehousing and distribution space for retailers, manufacturers and couriers, is a UK share I already own. I bought it because I think it’s a great way to buy for the e-commerce boom. And it stands to gain from the current inflationary surge too.
I’d also invest in retail park operator Ediston Property Investment Company as click and collect buying takes off, as well as residential property specialist Grainger. The latter stands to gain from rising tenant costs as Britain’s rental property shortage worsens.
These companies, like any other UK share, aren’t without risks. Tritax and Ediston could suffer if consumers start to feel the pinch and discretionary spending falls. Their acquisition-led growth strategies also leave them in danger of picking up assets that fail to deliver. Meanwhile, Grainger’s profits could suffer if prices of home-making raw materials keep climbing.
3 FTSE 100 stocks I already own
On balance though, I still think these UK shares are great buys in this über-inflationary environment. And I’d say the same about manufacturers of some of the world’s most popular consumer product brands. Stocks I own that fall into this category include Unilever, Diageo and Coca-Cola HBC.
These FTSE 100 stocks are great inflationary hedges as shoppers will stretch their shopping budgets to buy their goods. Fast-moving consumer goods (FMCG) firms like these can also afford to pass on rising raw material costs to their customers without having to worry about a significant fall in volumes.
The immense brand power of Coke means that Coca-Cola HBC should grow profits, regardless of economic conditions. The same can be said for Diageo, whose broad portfolio of drinks include market leaders such as Guinness stout, Captain Morgan rum and Smirnoff vodka. People will also be happy to keep paying a little extra for Unilever’s Magnum ice creams and Dove soaps too.
However, I’m a little concerned about whether brand power is beginning to lose its lustre with the next generation of shoppers. The clout of famous labels has been losing steam over the past decade or so. And Unilever et al may be forced to spend increasingly-colossal amounts on marketing to keep consumers interested.
Still, I’m confident that the desirability of their products remains strong enough to help me, as an investor, make decent returns for a few years more at least.
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Royston Wild owns shares of Coca-Cola HBC, Diageo, Tritax Big Box REIT, and Unilever. The Motley Fool UK has recommended Diageo, Tritax Big Box REIT, and Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.