Concerns about inflation are on the rise. And it seems increasingly difficult to find FTSE 100 stocks that will not be impacted poorly by it. There is little doubt that many companies will see a rise in their costs — indeed they already are. But there are others that might be impacted only minimally. Here are three such that I like.
BP could rise higher
The first most obvious guess is oil stocks. They have made big gains as oil prices rise. BP and Royal Dutch Shell are the two big oil FTSE 100 stocks, and I like and own both of them. But if I had to pick one between the two, my choice would be BP. While both of them are still trading below their pre-pandemic share prices, in terms of market valuations, BP is significantly more attractive.
With a price-to-earnings (P/E) ratio of 16 times, it trades a little below the FTSE 100 P/E and is way lower than the 44 times for Shell. Moreover, right now its dividend yield at 4.1%, which is slightly higher than Shell’s at 3.9%. Of course, it’s possible that over the course of the year BP’s valuation could catch up to Shell’s and the latter’s dividend yields could rise much higher than BP’s. It is also possible that their current comparative advantage will be lost if growth slows down, and the oil price increases. But for now, BP looks good to me.
SSE is my FTSE 100 utility pick
I also like utilities, purely because of the nature of their business. There is no denying that inflation would impact them too, especially if economic growth weakens, but there is only so much that utility demand can decline. And FTSE 100 utilities also have higher than average dividend yields. Among these, I have bought the electricity stock SSE, keeping the long-term future in mind. It is a big green energy producer that has top credentials in a world where tackling climate change is becoming increasingly important. It also has a really low P/E of 6.3 times, which makes it far more attractive than many other FTSE 100 stocks.
Imperial Brands is a resilient stock
Finally, I know this is controversial, but I like the Imperial Brands stock. It is an old economy, tobacco stock, but hear me out. First things first, it is making efforts to transition to tobacco alternatives. So, who knows, it could still have a bright future and not one that impacts health adversely. Also, it has a big dividend yield of around 8%, which could be sustained going by its solid earnings. And finally, its share price has been rising over time, and could continue to do so in the foreseeable as well, going by the available forecasts. I own the stock, and even for its flaws, I still think it is a particularly good buy right now because it is a consumer defensive whose demand does not vary much with inflation.