Inflation is skyrocketing in the UK. Official data has just shown that prices have increased at their fastest pace since 2012. Things are also threatening to worsen as supply chain problems escalate at home and abroad.
However, there are several strategies that UK investors like me can protect their wealth. I think the following companies could be some of the best stocks to buy as inflation pressures increase.
Protection with UK property stocks
I think investing in UK real estate stocks is a good option as inflation rises. Not only do real estate companies see the value of their physical assets improve in such an environment, but they can also expect the amount they receive in rents to increase.
Tritax Big Box REIT, which provides warehousing and distribution space for retailers, manufacturers and couriers, is a UK stock that I already own. I bought it because I think it’s a great way to buy for the ecommerce boom. And it also has everything to gain from the current inflationary surge.
I would also invest in the operator of the commercial park Ediston Real Estate Investment Company with the rise of click and collect buying, as well as a specialist in residential real estate Grainger. The latter has everything to gain from rising tenant costs as the rental property shortage in Britain worsens.
These companies, like any other UK stock, are not without risk. Tritax and Ediston could suffer if consumers start to feel the pinch and discretionary spending wanes. Their acquisition-driven growth strategies also put them at risk of recovering underperforming assets. Meanwhile, Grainger’s profits could suffer if the prices of household raw materials continue to rise.
3 shares of the FTSE 100 that I already own
Overall though, I still think these UK stocks are great buys in this ultra-inflationary environment. And I would say the same about the manufacturers of some of the world’s most popular consumer brands. Stocks I own that fall into this category include Unilever, Diageo and Coca-Cola HBC.
Those FTSE 100 stocks are great hedges against inflation because buyers will stretch their purchasing budget to buy their products. Consumer Staples (FMCGs) companies like these can also afford to pass rising raw material costs on to their customers without having to worry about a significant drop in volumes.
The immense branding power of Coke means that Coca-Cola HBC is expected to increase its profits regardless of economic conditions. The same goes for Diageo, whose broad beverage portfolio includes market leaders such as Guinness beer, Captain Morgan rum and Smirnoff Vodka. People will also be happy to continue paying a little extra for Unilever. Magnum ice creams and Dove also know.
However, I’m a little worried about whether the brand’s power is starting to lose its luster with the next generation of buyers. The influence of famous labels has waned over the past decade. And Unilever et al may be forced to spend increasingly colossal sums on marketing to maintain consumer interest.
Nonetheless, I am confident that the desirability of their products remains strong enough to help me, as an investor, generate decent returns for at least a few more years.
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Royston Wild owns shares of Coca-Cola HBC, Diageo, Tritax Big Box REIT and Unilever. The Motley Fool UK recommended Diageo, Tritax Big Box REIT and Unilever. The opinions expressed on the companies mentioned in this article are those of the author and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that considering a wide range of ideas makes us better investors.