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5 blue-chip ASX shares to counter inflation

Inflation is beginning to entrench itself

After months of central banks kicking the can down the road, inflation is beginning to entrench itself. Businesses are reporting rising input prices. Households are being hit with bigger bills. And markets continue to swing wildly. Here are five ASX shares to protect your portfolio from inflation.

Supermarkets don’t exactly scream sexy, exciting, or invest in me! But the reality is that every household needs groceries, providing robust earnings through the cycle. A cost-conscious consumer is more likely to cut discretionary spending, such as eating out and drinks. Furthermore, supermarkets should also be able to pass on input costs passed-through by most suppliers, shielding themselves from margin pressure. And in cases where it can’t, many of the items already are loss leaders (Coca-Cola, milk, eggs). Coles Group (ASX: COL) looks like the pick of the two majors, trading on an earnings multiple of about 23 times. Bigger brother Woolworths Group Limited (ASX: WOW) is more expensive on 30 times earnings, due to its more market-friendly ESG rating after the demerger of Endeavour Group (ASX: EDV) into a separately listed ASX company last year.

Macquarie Group (ASX: MQG) might seem an odd place to combat inflation, given its extensive infrastructure and asset management activities. However, any market rerates in asset prices should be more than offset by the “millionaire factory” capitalising on the current market volatility. Inflation is at multi-decade highs, central banks are bickering over interest rate rises and the Russian invasion of Ukraine doesn’t have an end in sight. It was only 12 months ago that MQG’s Commodities division made a net profit of $798 million from dislocations in oil, energy, and metals markets, particularly in the United States. This is a bet on talent, and the silver doughnut has the best in the game.

  • Healthcare is another fruitful hunting ground for inflation protection. Typically, medical devices companies such as hearing implant pioneer Cochlear Limited (ASX: COH) have high gross margins and can pass-on costs to suppliers or patients. Furthermore, as economies reopen after COVID-19 restrictions, health activities will resume to more normal levels. In fact, there will likely be a positive (albeit temporary) bump to the sector over the next 12 months. Illustrating this, CSL Ltd (ASX: CSL) announced on Tuesday that plasma collections were now above pre-pandemic levels, after plaguing the company’s growth over the past two years. Fortunately, the market hasn’t priced this in, with the CSL share price 8% below where it was two years ago. The one dark cloud over healthcare is supply constraints, which have limited near-term sales for the likes of ResMed Inc (ASX: RMD).

    Overall, investors should be looking for businesses with inflation-protected earnings. Generally, this is either via CPI-linked price escalations (think toll roads and utilities) or businesses with pricing power. On the flip side, businesses in ultra-competitive sectors (hospitality, retail) will likely struggle if and when inflation persists.

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