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3 resilient company shares to buy

Three company shares we think could withstand inflationary pressures

Worries about inflation and rising interest rates have hit global stocks markets in the past week. Equity markets have seen the sharpest falls since the height of the Covid pandemic in March 2020, as central bankers have raised interest rates to combat inflationary pressures.

In difficult times in the markets, it’s a good idea to look for shares in companies that can stand the test of time. Amid the market turmoil, here are a few firms we think might show resilience in turbulent periods.

Compass Group’s Covid comeback

Compass Group revealed an impressive comeback from the Covid pandemic at its recent results and a share buyback programme. The catering firm plans to return £500 million to shareholders through its buyback scheme. Just two years ago the company had to stage a £2 billion rights issue to keep afloat after several key events were cancelled due to the Coronavirus.

However, since then, Compass has recovered and recent strong growth pushed half-year revenues above pre-Covid levels, while operating profits improved almost three-fold. Figures beat analysts’ forecasts, with organic revenue growth of 37.9%, thanks to a strong performance in North America and Europe. New business wins, meanwhile, stand at £2.5 billion and its customer retention level at a record 95.8%.

While group chief executive Dominic Blakemore acknowledges inflationary pressures are a challenge, he thinks that these could actually boost new business wins, as new clients seek to save money by outsourcing their catering needs.

The shares initially had a good run this year, hitting highs of 1841.98p in May. However, they have since fallen back to 1677.5p and – still down from their 2019 highs of 2094p - could be worth buying for the long term.

Burberry shows resilience in tough times

Retail might not seem like an obvious sector to look at right now, with rising costs, but Burberry attracts an upmarket clientele, with financial resilience. The company recently unveiled upbeat figures, demonstrating its strength as an international brand. The luxury fashion retailer has had a tough time during the Covid pandemic.

However, last year revenues jumped 23% to a record £2.8 billion, while pre-tax profits increased by 4% to £511 million. As such, the company has launched a £400 million share buyback scheme for 2023.

Unlike a number of retailers, which have trimmed their near-term earnings outlook, Burberry is also maintaining its earnings guidance for the full-year 2023 of “high single-digit revenue growth.” It also plans 65 new store openings and refurbishments this year.

That said, the company is facing currency headwinds and Covid lockdowns in one of its key overseas markets – mainland China – where 40% of its store network is exposed. However, Luca Solca, analyst at Bernstein Bank, reckons that the retailer should benefit exponentially if China phases out its ‘zero-Covid’ policy later this year. It should also benefit from the strong Dollar.

At 1617p, the shares are down 29% on their three-year highs of 2270p, seen in December 2019. However, they are worth buying on the strength of the company as an international brand and its high-end clientele.

AstraZeneca could prove to be a safe haven

Pharmaceutical shares are traditionally a safe haven for investors when the going gets rough. The fortunes of these companies tend to be less reliant on the economic cycle, because patients will always need medicines. As such, they tend to have strong pricing power.

AstraZeneca has benefited strongly from the success of its Covid vaccine, with first-quarter sales up 60%. Admittedly, this fillip is set to wane but overall sales are expected to be strong this year.

The drug giant also recently unveiled encouraging data from trials of its new breast cancer drug Enhertu. It doubled the progression-free survival rates of patients with late-stage breast cancer compared with chemotherapy treatment. As such, it’s thought the antibody-based product could revolutionise cancer treatment and become a ‘multi-blockbuster’.

Following the Alexion acquisition, which brought in a number of treatments for rare diseases, AstraZeneca’s pipeline is more diversified than it was previously when it focused more heavily on cancer drugs.

The shares have enjoyed a strong run in the past year, up by 19% overall, but sliding to 10,054p in the recent market rout. However, given analysts at JP Morgan Chase set a price target of £120 following its recent first-quarter results, there could still be some upside available.

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*Based on revenue excluding FX (published financial statements, June 2021).

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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