Rising interest rates in the bond markets and higher commodity prices have sparked concerns that inflation could be on the horizon. This could be a significant challenge for investors in FTSE 250 and, indeed, all UK-listed companies.
Historically, stocks and shares have tended to produce low returns in periods of high inflation. Past performance should never be used as a guide to future potential, so there’s no guarantee the same will happen this time around.
Nevertheless, rising commodity prices suggest companies will have to deal with higher costs for their goods and services going forward. That could impact profitability. However, some businesses should deal better with this uncertainty than others.
With that in mind, here are three FTSE 250 stocks I’d buy today to prepare my portfolio for inflation.
FTSE 250 growth investments
It will always be impossible to predict with a high degree of accuracy which companies will succeed and fail in any economic environment. Therefore, while some businesses might look as if they’re well-positioned to succeed in an inflationary environment, there’s no guarantee they will.
I’d buy CMC Markets due to its ability to succeed in all economic environments. The company makes money from trades placed on its platforms. The more trades placed, the higher its revenue. This suggests the business is well-positioned to succeed in times of uncertainty as stock market volatility tends to increase in uncertain times.
That said, this FTSE 250 business isn’t without its risks. Volatile markets can throw up unforeseen events. These could lead to many customer insolvencies, which would leave the business nursing heavy losses. Regulatory risks are also a threat to the business. Several years ago, regulators clamped down on organisations like CMC offering highly leveraged investments to retail investors. This significantly dented the company’s profits overnight.
Despite these risks, I’d buy the stock for my portfolio today.
Investing in gold can be a great way to navigate uncertain times. In the past, it’s been a good hedge against inflation. Owning gold miners can be a great way to gain exposure to the yellow metal. FTSE 250 gold miners Centamin and Hochschild Mining are two examples.
By owning gold directly, investors are betting that the price will increase. This is never guaranteed. On the other hand, the aim of gold miners is to generate profit. As such, they try and produce gold for less than it cost to sell. I think this makes them a better investment because they generate cash, which can be returned to investors. Gold doesn’t generate any output whatsoever.
However, these can be risky investments. The gold price can be highly volatile, which means profits can swing wildly. Moreover, miners are highly susceptible to labour issues which can push costs up and shut down production. These risks may mean gold miners aren’t that suitable as an investment for some compared to a direct investment in gold.
Still, as a way to navigate inflation, I’d buy these FTSE 250 stocks for my portfolio.
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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.