2 inflation-resistant FTSE 100 stocks to buy in the current bear market

A large number of FTSE 100 stocks have struggled recently, due to inflationary fears. Here are two I see as having good inflation-resistance. I’d buy them now.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Inflation in newspapers

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Inflation is one of the biggest issues facing the markets right now. In fact, in the UK it has already risen to 9% and the Bank of England expects a further increase to 11% in the near future. This has caused havoc in the UK markets, with the FTSE 100 and the FTSE 250 both down 5% in the past month. In the last year, the blue-chip index has slightly outperformed its more domestically-focused peer by staying flat. The FTSE 250, by contrast, has sunk around 15%. Here are two FTSE 100 stocks I’d buy to help beat inflation.

The drinks giant 

Diageo (LSE: DGE) has outperformed the Footsie over the past five years, rising over 50%, in comparison to a 5% decline in the wider index. Over the past year, the Diageo share price has stayed flat. This outperformance has mainly been driven by its defensive business model, which has been far more inflation-resistant than other FTSE 100 stocks. 

Indeed, the firm has a drinks portfolio of over 200 brands, operating in over 180 countries. As the owner of large brands such as SmirnoffGuinness and Johnnie Walker, it also has a significant amount of brand loyalty. This means that the company has strong pricing power and it can offset its increasing cost base with price rises. Many other FTSE 100 stocks don’t have the same ability. 

Further, the firm has been performing well in recent months. For example, in the first half of FY2022, Diageo reported net sales of £8bn, an increase of 15.8% year-on-year. This was mainly fuelled by organic growth, rather than acquisitions, highlighting future strong growth prospects for the group. Reported profits also increased 22.5% year-on-year, reaching £2.7bn. This supported a 5% dividend increase to 29.36p per share and a £4.5bn share buyback programme. 

There are risks with the company, however. For instance, it trades at a price-to-earnings ratio of over 20, which is high in comparison to other FTSE 100 stocks. It also suggests an expectation for profits to continue increasing. However, I feel that the premium is deserved, and I would add more Diageo shares to my portfolio right now. 

A luxury FTSE 100 stock 

With a market capitalisation of £6.5bn, Burberry (LSE: BRBY) is a major player in the luxury fashion industry. However, over the past year, the company’s share price has dipped 27%, partly due to worries around Chinese growth amid the recent lockdowns. But while this is a genuine risk, I feel that Burberry is now a great stock for me to buy.

For example, the recent FY2022 trading update showed significant strengths. Revenues managed to soar 23% to a record £2.8bn, while pre-tax profits rose 4% to over £500m. For FY2023, the company expects “high single-digit revenue growth and meaningful margin accretion”. This bodes extremely well for the future. Such confidence has also enabled the group to launch a £400m share buyback programme, which will hopefully have a positive impact on the Burberry share price. 

I also believe that luxury fashion consumers are less susceptible to inflationary pressures, meaning Burberry can raise prices easier and still retain customers. For this reason, I’m very tempted to add some of the shares to my portfolio. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Stuart Blair owns shares in Diageo. The Motley Fool UK has recommended Burberry and Diageo. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Illustration of flames over a black background
Investing Articles

Just released: May’s higher-risk, high-reward stock recommendation [PREMIUM PICKS]

Fire ideas will tend to be more adventurous and are designed for investors who can stomach a bit more volatility.

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

Why now could be the time to buy these recovering FTSE 100 growth shares!

Royston Wild is building a list of the FTSE's greatest shares to buy today. Here are two he thinks could…

Read more »

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

My Stocks and Shares ISA has two giant weeds in it. Should I pull them out?

This writer has two massive losers inside his Stocks and Shares ISA portfolio. What's gone wrong? And is it time…

Read more »

Mature black couple enjoying shopping together in UK high street
Investing Articles

7.5% dividend yield! 2 cheap passive income stocks to consider for a £1,500 payout

Royston Wild describes how large investment in these passive income stocks could provide a four-figure cash payout this year.

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

Billionaires are selling Nvidia stock! I’d rather buy this AI share instead

With billionaire investors now banking profits in Nvidia stock, our writer considers an AI share that still looks to be…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

3 shares that could soar as the UK stock market wakes from its slumber

The UK stock market is on fire at the moment. If it keeps rising from here, Edward Sheldon reckons these…

Read more »

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is on fire! 2 top shares I’d still snap up

FTSE 100 shares as a whole might be setting records on a daily basis this month, but that doesn't mean…

Read more »

Young Black man sat in front of laptop while wearing headphones
Investing Articles

£11,000 in savings? Here’s how I’d aim to turn that into a £15,080-a-year second income

Buying dividend shares is how this Fool continues to build up his second income. With a lump sum of savings,…

Read more »