Livewire readers’ 20 most-tipped stocks to beat inflation

There is no doubt that “inflation” is the million-dollar word on everyone’s lips right now - and for that matter, the million-dollar problem. Everyone is affected by it. Everyone knows it's going higher for the foreseeable future. But there is no playbook for how to make money from it.

That's why we turned to you - our beloved Livewire audience. More than 1,300 of you took a punt on one key question we asked in our most recent reader survey.

“What one stock would you pick to fight rising inflation and interest rates?”

This wire will take an in-depth look at the results. From the clearly dominant themes in the top picks to the less talked about stalwarts. In this wire you will encounter:

• An overview of the portfolio 
• The Livewire readers' top 5 
  
• Further thoughts 
• Honourable mentions
• Key takeaways
• A table of the top 20 stocks portfolio 

Livewire readers' top 20 stocks to beat inflation 

(Table compiled by Ye-Qun Feng)

An overview of the portfolio: Large-cap and concentrated

When the going gets tough, the readers of Livewire flock to the true and tried sectors. Of the 2000+ ASX companies that you could have chosen from, nearly half of the responses we received were concentrated in just two sectors and five stocks.

Namely, houses and holes (also known as financials and materials).

That also reflects the results in the main survey - where more than 800 of you said you would be looking to add to your ASX large-cap exposures in the 2022/23 financial year. 

Examining the portfolio

Speaking of large caps, I thought you would find it instructive for us to take a look at the shape of this 20-stock portfolio you've helped to nominate. For simplicity's sake, we've made each stock an equal weight in this portfolio (i.e. each stock has a 5% weighting).

• The average market cap of the portfolio is $152.9 billion
• There is only one international stock in the Top 20
• The top five companies received 46% of all the votes
• The average dividend yield of our portfolio is 4.8%, outpacing the 4.04% for the All Ords (as of Tuesday 21/6/2022)

but...

• The dividend yield for our top-nominated stock is a mind-boggling 11.91%. It's also increased its payout by a factor of 15 in just six years. 

Your #1 pick: BHP (ASX: BHP)

The big Australian (BHP) received 248 reader votes and despite the economic headwinds in China, the huge boom in commodity prices has been impossible to ignore. Although Dalian iron ore futures peaked at US$220/tonne back in July 2021, we haven't actually seen a sub-$100 futures price since November 2021.

The story is still - much like in the case of Woodside - a supply-side debacle. Although the Chinese economy is slowing and demand has been on the decline due to lockdowns, BHP has other minerals it can mine to harness other opportunities like electrification.

For a primer on that, the brilliant David Thornton wrote this great piece on the future for the big three miners post-China boom:

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A side note: Are commodities too much of a good thing?

Much like a good bowl of macaroni and cheese, Livewire readers can't get enough of the whole materials and energy thematic. Beyond the names mentioned above, four other companies in the space made the list:

• Santos (ASX: STO)
• Fortescue Metals (ASX: FMG)
• Rio Tinto (ASX: RIO)
• South32 (ASX: S32)

2. CSL (ASX: CSL)

I've heard market participants describe this company as one of the great Australian stories. What's not to love? The share price. After peaking at more than $300 a share in March 2020 and August 2021, it's been a less than spectacular performance for the health-tech giant.

But many analysts and fund managers continue to back management and its vision - particularly once it gets this Vifor Pharma acquisition over the line.

One of those is Ben Clark of TMS Capital who recently called CSL a screaming buy on Buy Hold Sell

"I think this is one of the best quality businesses on the market, it's trading on 31 times next year's earnings. It often looks expensive, but this looks cheaper than it has for some time".

CSL received 121 reader votes - but even the Paul Perreault-led giant was no match for the number one ASX pick to fight rising inflation and interest rates. 

3. Macquarie Group (ASX: MQG)

The fifth big bank is famous for its "cautious stance" and "conservative approach to capital". Although repetitive, it really has been a proven winning strategy. The company recently issued a 56% increase in net profits and assets under management are closing in on $800 billion.

Unlike the other big banks, Macquarie's focus is less consumer-heavy and far more investment and markets-heavy. That was a boon for them in 2021 but 2022 could provide an even more telling tale.

It's also a near-universally loved name among the research houses - Morgans, for instance, has 30% upside priced into the company's share price! For now, Macquarie's dividend yield remains under 4% but that could change anytime.

Speaking of Morgans, Andrew Tang released the team's 12 best ideas for right now - and you can catch up here:

Macquarie Group received 94 reader votes.

4. Woodside Energy (ASX: WDS)

The war in Ukraine and the visible effect it has had on global energy prices has been a boon for the company. Its mega-merger to take over BHP's petroleum assets also appears to have done wonders for its balance sheet.

But probably most important of all for investors, Woodside's bumper year means it could pay out a windfall in dividends. Morgan Stanley Wealth Management, for one, expects there could be as much as US$20 billion given back to shareholders over the next decade.

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Woodside Energy received 79 of our readers' votes.

5. Commonwealth Bank of Australia (ASX: CBA)

We were all told that the Big Four banks would be an excellent hedge in a rising rates environment. Crimped margins would finally see relief and any signs of mortgage stress would be handled delicately by the respective management teams.

What they forgot to mention was what was coming - a global economic downturn. 

The CBA share price has fallen 16% in the past month - roughly in line with the year-to-date falls experienced in the ASX financials index. 

But perhaps the most important metric of all is that the stock is now trading near 52-week lows. While some are buying the dip, others like Citi's Brendan Sproules are not.

Other honourable mentions

Where in doubt, go with names and sectors that reflect the defensive mood of the market. Perfectly fitting that brief is the essential infrastructure names - companies that possess a "CPI-plus" model or are considered always vital to every person's daily life. Such names include:

• Telstra (ASX: TLS)
• APA Group (ASX: APA)
• Transurban (ASX: TCL); and the one international name to make the list:
• Microsoft (NAS: MSFT)

Then, there are the consumer staples of Woolworths (ASX: WOW), Wesfarmers (ASX: WES), and Coles Group (ASX: COL). After all, we have to eat and still fix up leaks around the house right?

The one total outlier on this list is REA Group (ASX: REA) - is it a bet on a quality management team or a chance to buy the property dip before the market becomes too hot to handle again? 

A shoutout to a pair of ASX Dividend aristocrats 

A lot of companies come and go on public bourses - many have their brief moments in the sun before eventually delisting and falling by the wayside. Then, there are the "dividend aristocrats" - the companies that just chug along and payout consistent efforts despite whatever the world throws at them. 

According to US News, there are 65 such names on the S&P 500 - with many of them growing their dividends for 50+ years and counting. Now that's a reliable source!

Here in Australia, we don't quite apply the same high bar but there are two names in particular that get a shoutout for remaining stable in times of incredible volatility. 

These two got a mention in our reader survey:

• Soul Pattinson (ASX: SOL)
• Australian Foundation Investment (ASX: AFI)

The key takeaways

• Our 20 most-tipped stocks come from over 1300 submissions in our latest Livewire reader survey
• Materials and financials dominate the list
• All three major miners and two prominent energy companies are on the list - enhanced by our readers' interest in expanding commodity exposure
• Major defensives were not left out, highlighting how much people are just waiting and watching
  

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I'll be in charge of asking the questions to Australia's best macro strategists, economists and fixed income fund managers. If you have questions of your own or guests we should chat to, flick us an email: content@livewiremarkets.com.