Warren Buffett recently said “inflation swindles almost everybody”. With prices soaring, I’m finding this a difficult time to manage my stock market portfolio. Yet, despite the doom and gloom, I think there are bargain investment opportunities in FTSE 100 shares.
Here are three I’d buy to try to beat inflation.
Shell
The share price of Europe’s largest oil and gas group, Shell (LSE:SHEL), has climbed a whopping 37% this year. Contextualised by skyrocketing energy prices, this comes as little surprise.
Following record $11.5bn profits in the second quarter, the energy giant’s undertaking a share buyback bonanza this quarter. It’ll purchase $6bn of its own shares by late October. I view this as a strong display of optimism from company leadership in the stock’s long-term potential.
With Russia throttling European supplies for the foreseeable future, elevated natural gas prices show little sign of coming down. This could be a catalyst to drive further earnings growth for Shell and competitors like BP.
Granted, the stock isn’t risk-free. Growing calls for substantial government intervention in energy markets are a potential headwind. The hurried imposition of windfall taxes across the UK and EU could be the tip of the iceberg.
Even so, the company’s price-to-earnings ratio looks tantalisingly low at 5.66. I think there’s a convincing case that Shell shares are undervalued. I’d buy today.
Diageo
Another stock in the FTSE 100 index I’d buy is global drinks goliath Diageo (LSE:DGE). Consumer goods companies can often pass rising costs to customers. Diageo is no exception.
Iconic brands from Guinness to Tanqueray mean the company benefits from strong customer loyalty. This translates into significant pricing power, adding to the stock’s inflation-combating appeal.
The FY22 results revealed ‘premium-plus’ brands contributed 57% of the business’s net sales and drove 71% of organic net sales growth. Indeed, ongoing luxury sector expansion could help steer Diageo through a possible recession.
The trend of people drinking better has been in place for a long time…even when you go back through old economic cycles – the global financial crisis for one – you saw a few quarters where that trend reversed a little bit, but it came roaring back.
Ivan Menezes, Diageo CEO
A high price-to-earnings ratio just shy of 27 makes me worry that, at over £37, the Diageo share price could be overvalued. However, it’s been a top FTSE 100 performer in the past. I believe there’s a good chance this trajectory will continue into the future.
BAE Systems
My third Footsie stock pick is defence outfit BAE Systems (LSE: BA.). The war in Ukraine has contributed to surging demand for the company’s products and services, resulting in a 41% share price gain this year.
The UK government is a major customer. Accordingly, new Prime Minister Liz Truss’s pledge to boost defence spending to 3% of GDP by 2030 bodes well for BAE shares.
In addition, continued investment in its cybersecurity portfolio means the company is well-positioned to respond to evolving threats in the 21st Century.
I’m concerned by rising costs of raw materials, such as steel and aluminium, which could weigh on the balance sheet. Nonetheless, BAE Systems is a unique defensive stock in every sense of the word. I’d buy.