With the US Federal Reserve this week lifting its cash rate, many experts feel it's inevitable Australia will follow in the coming months.
The fact is that even if the Reserve Bank of Australia disagrees, Australia's rate can't diverge too far off the US'. This is because the Australian dollar could otherwise skyrocket in value, causing our exports to collapse.
Considering this ominous situation, WAM Leaders Ltd (ASX: WLE) analyst Anna Milne had three ASX shares in mind that would be prudent buys right now.
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Australians still have to eat
Milne said her team has analysed past cycles of high inflation, rate hikes, and the post-hike market.
"In all of these situations, consumer staples outperform the market," she told a conference call to clients this month.
"Within consumer staples, we like the supermarkets. It makes sense that when inflation is high, consumer balance sheets and budgets are stretched — and people eat out less."
Among the supermarket ASX shares, she favours Coles Group Ltd (ASX: COL) after a "really good" results season when it reported "extreme cost discipline" over a "challenging period" of Omicron and Christmas.
"Previously, Coles has not been as good as Woolworths Group Ltd (ASX: WOW) at managing its costs and that's one of the reasons why there is a valuation differential between the two," she said.
"However, delivering the result it just did, it brings a differential into question, which is one of the reasons why we prefer Coles over Woolworths currently."
Coles shares closed Thursday at $17.78, down 1.28%.
Healthcare giant ready to take off again
The share price for CSL Limited (ASX: CSL) hasn't really gone anywhere since the ASX share's big acquisition of Swiss company Vifor Pharma in December.
But Milne reckons the market is underestimating the healthcare giant.
"Going into January, into the start of February, we saw a few green shoots across the business," she said.
"We have since met with management and have even more confidence in the medium-term outlook for the business."
Milne listed rising plasma collections, new plasma devices and the influenza vaccine as some of the tailwinds about to push CSL stocks upwards.
"I think, more importantly than that, it is one of the most high-quality names on the ASX, with a great management team. So it remains a core holding of ours."
CSL shares are down 8% for the year so far. They closed Thursday at $270.59, up 0.77% on the day.
Insurance stock pick that's not QBE for once
While it is generally acknowledged insurance companies would benefit from higher interest rates, most analysts seem to pick QBE Insurance Group Ltd (ASX: QBE) as their favourite.
Not Milne though.
"Insurance Australia Group Ltd (ASX: IAG) reported a really good February result," she said.
"We have since met with the management team and we are confident that the legacy issues are behind them and they are now focused entirely on the future of the company, earnings growth and the outlook."
IAG is already cashing in on "strong rates in the insurance cycle".
"They benefit from rising rates in the financial market. They have a cost-out program and capital management on the way," Milne said.
"We don't think any of this is reflected in the share price, so that is another core holding of ours."
QBE shares finished Thursday at $10.91, up 0.46%.
WAM Leaders shares closed at $1.53 on Thursday afternoon, which is up 2% this year. The listed investment company was trading at a 3.4% premium to net tangible assets as of 28 February.
