Tighten the belt. Lind Rendle on a recent call said “… we’re seeing an incredibly inflationary environment. I think that’s true in what your seeing across the industry, on both the retailer side, the manufacturer side, and supplier side, it is intense for sure”. Linda Rendle is CEO of Clorox, the purveyor of all sorts of household products that can do for pretty much everything from mildew to carpet cleaner. Now, whether the current spike in prices is inflationary depends on how you define the timeframe. The inflation of the 1970s was transitory, only it took a few years and some sweaty backs to pass through the pipe. For many, irrespective of the recent shuffle of the famous ‘dot plots’, the plan going forward is that inflationary pressures have oomph. Staying power. “Right now” said Stanley Black & Decker’s Lee McChesney, “we’re assuming the inflation we’re seeing is going to continue into next year.” There is, clearly, no greater topic that keeps executives and money men gazing into nothing, than inflation and what it means for strategy, for portfolios, for one’s general mojo. Buy real assets. Buy gold. And then, perhaps, buy some companies with long maturity, fixed rate debt. Should the inflation prove sticky, then the real value of all that debt will begin to fall relative to earnings which are tied to the up and at ‘em post pandemic boom. Indeed, recent performance of such companies suggests that there is some heat to the bid. Given all the debt issuance of recent years, it is not hard to find fully loaded up companies but – according to analysts – it is in the US where that debt is longer in duration. And the good news is that for those looking to bullet proof portfolios with an alternative ‘inflation hedge’ is that they won’t need to pay up premium multiples. Many such stocks are cheaper than the market. Such a backdrop offers further ballast to the already attractive bottom-up stories for the likes of Electronic Arts, Fiserv and Anthem. Amongst others.
The securities mentioned in this blog may be held by funds managed by Majedie Asset Management Ltd.