Home / Opinion / 5 blue-chip ASX shares to counter inflation

5 blue-chip ASX shares to counter inflation

Inflation is beginning to entrench itself
Opinion

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.

    Information warning: The information in this article was published by The Rask Group Pty Ltd (ABN: 36 622 810 995) is limited to factual information or (at most) general financial advice only. That means, the information and advice does not take into account your objectives, financial situation or needs. It is not specific to you, your needs, goals or objectives. Because of that, you should consider if the advice is appropriate to you and your needs, before acting on the information. If you don’t know what your needs are, you should consult a trusted and licensed financial adviser who can provide you with personal financial product advice. In addition, you should obtain and read the product disclosure statement (PDS) before making a decision to acquire a financial product. Please read our Terms and Conditions and Financial Services Guide before using this website. The Rask Group Pty Ltd is a Corporate Authorised Representative (#1280930) of AFSL #383169




    Print Article

    Related
    Why bank analysts prefer this quality lender over the rest

    Morgans have released a summary of the key points from the recent bank reporting season. Of the banks that reported, Morgans says NAB was in line with consensus expectations, while ANZ and WBC beat consensus earnings expectations. Despite this, Morgans holds NAB as having the strongest 1H22 performance overall. NAB produced the strongest profit growth…

    Ishan Dan | 18th May 2022 | More
    Two of the most bullish bets on the ASX

    Markets around the world are still in freefall as losses mount as a result of investors moving out of risk partly due to inflation fears and supply chain disruptions partly due to the crisis in Ukraine and Covid lockdowns in China. The market is yet to become comfortable with the rate hike cycle that is…

    Ishan Dan | 18th May 2022 | More
    Top of the pops – top global funds had one thing in common

    March stands out as being one of the most difficult periods for investors in a generation. On the one hand, bond markets send fixed income to its worst return in more decades, and on the other, equity markets were sold off broadly on valuation concerns as bond yields ended a forty-year downward trend. It is…

    Drew Meredith | 18th May 2022 | More
    Popular
    1
    What does High Conviction mean?
    Ishan Dan | 10th Mar 2021 | More
    2
    Inside CSL’s big end of year deal
    Lachlan Buur-Jensen | 15th Dec 2021 | More
    3
    Battery materials in short supply but valuation is key
    Ishan Dan | 25th Mar 2022 | More
    4
    Behind Brickworks’ (ASX:BKW) record profit
    Jaz Harrison | 25th Mar 2022 | More
    5
    Is JB Hi-Fi the best retailer in Australia?
    Lachlan Buur-Jensen | 25th Mar 2022 | More
    6
    Three ASX stocks ripe for a takeover
    Lachlan Buur-Jensen | 23rd Mar 2022 | More