I’m looking for stocks that I think can beat inflation as we head into 2022. This is because the Bank of England is forecasting an inflation rate of 5% by April next year. This is pretty high, and even the Bank admitted it was materially higher than it expected in its August forecast.
I want my portfolio to be ready for the prospect of higher inflation. Here are three stocks that I think can help me.
One notable billionaire made 99% of his current wealth after his 50th birthday. And here at The Motley Fool, we believe it is NEVER too late to start trying to build your fortune in the stock market. Our expert Motley Fool analyst team have shortlisted 5 companies that they believe could be a great fit for investors aged 50+ trying to build long-term, diversified portfolios.
A top REIT to beat inflation
The first is a real estate investment trust (REIT). These investments manage property estates, and have to pay out at least 90% of taxable income to shareholders.
Supermarket Income REIT (LSE: SUPR) has a portfolio of UK supermarket real estate that has inflation protection built into its leases. In fact, the income it receives from renting out its properties to supermarket brands is inflation-linked. This has meant it’s been able to increase its dividend target in line with inflation each year.
The company is highly acquisitive, so I have to be sure management is able to source attractive deals for its property portfolio. For example, in the full-year result to the end of June, £353m of equity was raised to acquire 20 supermarket assets.
That said, there’s a risk that valuations get stretched, or that management is unable to continue finding well-located properties. But I’d be happy to add this stock to my portfolio today.
A stock with pricing power
Rightmove (LSE: RMV) is a company that I’m sure many will know. This is because it’s the most used digital property market in the UK.
The reason I think Rightmove can help me in a world of high inflation is its pricing power. Its dominant position in its market means it can raise its prices (within reason) without losing its customers. In fact, it’s been able to do this for at least the last 10 years (excluding 2020 during lockdown).
There’s also its network effect to take into account. Its online marketplace has the most buyers, so Rightmove’s customers want to make sure they’re using the platform too. It’s very similar to Auto Trader in this way.
I do have some caution though, as another lockdown could slow the housing market again. Yet on balance, I think Rightmove is a buy for my portfolio.
Another top REIT
Tritax Big Box (LSE: BBOX) is the last company I’m looking at. The company is similar in some ways to Supermarket Income REIT, only Tritax Big Box focuses on warehouse properties. Warehouse demand has surged due to the e-commerce sector and Tritax is the UK’s largest REIT owning high-quality logistics warehouses.
It also has inflation-linked rent reviews, which should protect income streams if we enter a higher inflationary period. The company says 49% of its rent reviews are linked to consumer price increases.
I’m less concerned about another lockdown here as logistics warehouses will still be required. However, valuations have become stretched in prime locations for warehousing. The company said itself that highly competitive markets have put downward pressure on rental yields.
Nevertheless, I’m looking to buy this REIT as inflation rises.