Baby boomers have been the major beneficiaries of rising housing prices over the decades. That does not necessarily mean it’s a good investment decision for them to buy residential property as they near or begin retirement.
A tight labour market and sticky inflation suggests that the Reserve Bank is not about to cut the cash rate. Indeed, it’s more likely the bank will lift it again – good news for those with cash and term deposits.
Why analysts are flagging these three stocks as inflation hedges
Inflation fears are ripping through markets again with experts suggesting a correction may already be underway after the US Fed prepares to end the easy money era of the pandemic. US Federal Reserve member James Bullard spooked markets with his hawkish tightening monetary policy comments. He sees the ‘first interest rate rise as soon as 2022’ as inflation picks up suggesting an even more hawkish view, than that of the US Federal Reserve Board chairman Jerome Powell.
US 10-year bond yields have settled back at around 1.44 per cent and Australian 10-year bond yields are 1.526 per cent.
With inflation and interest rates now likely to rise sooner than expected a move towards cyclical-value based stocks over overgrowth is underway. Higher inflation and interest rates “discount” the future value of company profits and are negative for unprofitable growth stocks.
Growth and tech stocks are most at risk while cyclical and value stocks that run on the economic cycle, should benefit. Sectors that do well in rising inflation are – healthcare, banks, consumer staples, wealth platforms, toll roads, utilities, banks and miners. That said, Australia is less vulnerable to rising inflation due to
In this article we discuss three ‘inflation’ proof stocks to hold in your portfolio according to expert brokers and analysts:
- Consumer Staples – Bubs (ASX: BUB)
- Healthcare – ResMed (ASX: RMD)
- Wealth management platform space (ASX: PPS)
Bubs (ASX: BUB) – With Chinese trade grinding to a halt, the number of Daigou shoppers transporting infant formula back to their homeland has all but dried up. This forced Bubs to report lower HY earnings and reduce financial guidance causing a near 60 per cent share price fall. But there is light at the end of the tunnel. With a strong capital position of $32.1 million, the company announced its US Walmart launch, sending the share price up 29.33 per cent at 48c. Apart from the US launch, BUB’s recent performance was also supported by developments in China’s two-child policy, to a three-child policy.
The 52-week high is $1.115, so there is still significant upside potential that remains, especially with this turnaround story. Bell Potter have a Hold recommendation but are optimistic on the company’s outlook. Bell Potter highlights the early stage of its product life cycle with revenue predominantly driven by an expansion in the distribution footprint, product uptake and category expansion.
In a rising inflation environment, consumer staples companies pass additional costs onto the consumers without it effecting demand. Consumer staples will still be in demand in a high inflation environment as people will still buy dairy, despite costs increases.
ResMed (ASX: RMD) – Shares in the sleep apnoea company are hitting all-time highs following rival Philips announcing a product recall for 3.5 million ventilator devices for treating sleep apnoea. The reduction in supply, will lead to an increase in demand for ResMed’s product, helping it win market share.
Ord Minnett have a Accumulate recommendation with a target price of $32.00. The broker says it’s a rare opportunity to gain market share in this way. As a result, the broker says “ResMed will rise a modest 5 per cent above prior forecasts, because of supply constraints. This uplift and operating leverage have led to a 7 per cent boost to FY22 estimates for earnings per share.” In times of rising inflation, healthcare stocks are considered defensive investments as people will always need healthcare even with rising costs. In the same was as consumer staples, healthcare is a crucial service.
Praemium (ASX: PPS) – Shares in the wealth management platform as well its competitors; Netwealth (ASX: NWL) and HUB24 (ASX: HUB), are worth watching during periods of rising inflation. The reason for this, is because a rising inflationary environment more often than not will create a knock-on effect of an RBA interest rate rise.
Sitting on $34.3bn in FUA, the adviser platform generates the bulk of their profit by taking a clip on cash accounts. Net platform inflows for the March 2021 quarter were $801 million, a 149 per cent increase compared to the reported March 2020 quarter. Platforms in both Australia and International recorded strong growth. Funds under administration (FUA) of $37.9 billion, up 11% in the quarter and up 96 per cent compared to March 2020.
