We’ll start by saying that no stock is completely inflation-proof, of course. But some are more resilient during periods of high inflation. Here, some of our freelance writers make a case for some that sit on the FTSE 350 today!
British American Tobacco
What it does: British American Tobacco sells its cigarette brands including Dunhill and Lucky Strike worldwide
By John Fieldsend. British American Tobacco (LSE: BATS) is my top inflation-resistant FTSE firm for two reasons.
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First, as a cigarette seller, the company has great pricing power. Its products are likely to sell even if the price is higher, and costs can be passed onto the consumer. This is particularly useful when inflation is high to keep revenues up without losing market share.
Secondly, the company is one of the few that offers a dividend that can rival current levels of inflation. The current yield is 8.54%, which looks like a good hedge against inflation (8.7% at the time of writing). That yield will look even better if and when we reach the Bank of England’s inflation target of 2%.
The risks here are the long-term prospects of cigarettes. While there are more smokers in the world than ever, it’s anyone’s guess how consumer habits in this area will develop.
John Fieldsend owns shares in British American Tobacco.
Rightmove
What it does: Rightmove owns and operates the largest property platform for buyers and sellers for UK property.
By Stephen Wright. My top inflation-resistant FTSE stock is Rightmove (LSE:RMV). Let’s start with why inflation is a problem for companies in general.
Inflation is a problem for businesses because it makes input costs go up when they can’t increase their prices to offset this. So there are two ways of resisting this.
One is by having low costs that don’t go up much with inflation. The other is having a product or service that people will pay more for, allowing price increases.
Rightmove arguably has both. As a software platform, it doesn’t use much by way of raw materials and its market position makes it indispensable for estate agents and advertisers.
The biggest risk is that higher interest rates might reduce supply in the property market. But I think this is one of the best FTSE stocks to own for protection against inflation.
Stephen Wright does not own shares in Rightmove.
Safestore Holdings
What it does: Safestore operates a network of self-storage facilities strategically positioned near urban regions across the UK and Europe.
By Zaven Boyrazian. With inflation driving up the cost of living, households across the country are seeking new opportunities to cut costs. But some things aren’t that easy to get rid of. And in my opinion, self-storage solutions like Safestore (LSE:SAFE) is firmly on that list.
The company owns and operates 185 self-storage facilities across the UK and Europe. Today it caters to approximately 90,000 businesses and consumers with 7.99 million square feet of space available.
While cancelling a rental contract isn’t necessarily difficult, finding space to put all the storage locker contents can be challenging, especially among smaller households. So it’s no surprise that revenue continues to grow in spite of the cost-of-living crisis.
The group is exposed to interest rate risk since acquiring and maintaining storage facilities isn’t cheap. But given the firm’s track record of consistently exceeding investor expectations, I think it’s a risk worth taking.
Zaven Boyrazian does not own shares in Safestore.
Sage
What it does: Sage is a software company that offers cloud-based accounting and payroll solutions.
By Edward Sheldon, CFA. When it comes to inflation-resistant FTSE companies, it’s hard to look past software company Sage (LSE: SGE), in my view.
For starters, Sage has an extremely high gross margin (meaning it doesn’t spend a lot of money on expenses such as raw materials, transportation, and salaries). Last financial year, it was 93%. When inflation is elevated, companies with high gross profit margins don’t see their net profits eroded to the degree that businesses with low gross profit margins do.
Secondly, as a software company, Sage has the ability to regularly increase its prices to offset any cost increases it is facing. Most customers are likely to just pay the higher fees, instead of switching to another software provider.
Additionally, its products can actually help other businesses reduce the impact of inflation (by automating processes). So, demand for its services should remain robust.
On the downside, Sage shares aren’t cheap. Currently, the forward-looking P/E ratio here is in the mid-20s. This adds risk to the investment case.
I think they are worth a premium, however, given the company’s inflation-resistant attributes.
Edward Sheldon owns shares in Sage
