I’m looking to build my investments in UK stocks this month. And there are a couple from the the FTSE 100 that I’ve got my eye on.
Inflation has been one of the major investing themes of 2022. But I think that there are a couple of FTSE 100 companies that are well-protected from the effects of rising prices.
Each of the stocks has fallen by at least 20% since the start of the year. I think this makes them attractive opportunities for my portfolio.
Top of my list is Rightmove (LSE:RMV). The stock has fallen by around 30% since the beginning of January.
Warren Buffett says that the best type of business is one that has low capital requirements. This is absolutely true of Rightmove.
The company operates the UK’s largest property platform. It generates around £232m in operating income using just under £12m in fixed assets.
That means that the company doesn’t need much capital investment to support its growth. Furthermore, Rightmove doesn’t use much capital in its operations.
Around £192m of the company’s operating income becomes free cash available to shareholders. This means that the business has a degree of protection against the effects of rising prices.
The less a company has to invest in maintaining and growing its operations, the less it is affected by rising prices. Rightmove’s low capital requirements are attractive to me in this environment.
Experian (LSE:EXPN) is another stock that I’m looking at buying in December. Since the start of the year, the stock is down by around 20%.
I think that the business also has good protection from the effects of inflation. But rather than having low capital requirements, its inflation protection comes from its pricing power.
Experian provides credit reports to lenders. These are assembled from a vast database of information, which makes them nearly impossible to replicate for a new entrant.
An Experian credit report is close to indispensable for banks looking to issue mortgage debt. That gives the company the ability to pass on price increases.
This is demonstrated by the fact that the company’s revenue growth has outpaced inflation over the last decade. As a result, the company has consistently maintained a growth margin over 45%.
Risk and reward
I’m looking to buy both of these stocks in December, since I think that they’re great businesses. But neither stock is entirely without risk.
The major risk in both cases is a recession in the UK. An economic slowdown is likely to dampen activity in the property market, which is the major source of income for both businesses.
That’s a significant headwind for both companies, but I expect to own any business I invest in for a long time. That means I expect to see favourable and unfavourable macroeconomic conditions.
Over the next few years, the businesses might generate less cash than they have previously. But I think that is curently reflected in the significant share price declines that each has seen this year.
In my view, both Rightmove and Experian are terrific businesses – among the best in the FTSE 100. That’s why I’m looking to buy shares in both in December.
The post 2 inflation-resistant stocks to buy from the FTSE 100 in December appeared first on The Motley Fool UK.
Stephen Wright has positions in Experian Plc and Rightmove Plc. The Motley Fool UK has recommended Experian Plc and Rightmove Plc. 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.
Motley Fool UK 2022