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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%.
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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 Smirnoff, Guinness 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.
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