Fundie reveals 3 ASX 200 shares with major pricing power to counter inflation

Which ASX 200 shares have the pricing power to beat inflation?

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Key points

  • Many ASX investors like to chase 'exciting' shares
  • But boring ASX shares can be just as exciting when they give investors solid long-term returns
  • One broker names three 'boring' ASX shares that have pricing power in today's inflationary environment 

ASX 200 investors love an ‘exciting’ share. Every year it seems, we have a new success story that investors are chasing for eye-watering returns and a big slice of the future.

This year has seen ASX lithium shares like Pilbara Minerals Ltd (ASX: PLS) or AVZ Minerals Ltd (ASX: AVZ) fill this role. In years gone by, it has been everything from Afterpay and Zip Co Ltd (ASX: ZIP) to WiseTech Global Ltd (ASX: WTC) and Pro Medicus Limited (ASX: PME).

But sometimes, the exciting shares don’t bring home the bacon when it comes to long-term returns. Just look at the current Zip share price to see this in action.

Sometimes, it’s the ‘boring’ companies that are the most exciting to hold over a long period of time. That’s especially the case during periods of high inflation. This is what we are starting to see across the global economy.

Inflation means the price of everything rises. So, for a company to succeed in this difficult environment, it must also have enough pricing power to pass these rising costs onto its customers. So let’s see which ‘boring’ companies this ASX fund manager is identifying as pricing-power winners today.

Fundie names 3 ASX 200 shares with pricing power

Michael Maughan of Tyndall Asset Management recently sat down with Livewire. There, he discussed the ASX shares with pricing power that he is looking at today.

Maughan identifies insurers as a good place to look. He reckons the “larger brands” such as Suncorp Group Ltd (ASX: SUN) and Insurance Australia Group Ltd (ASX: IAG) are the best stocks in this space.

Maughan said:

While repair costs are rising [with insurers], the pricing environment means they can be absorbed, and longer-term margin goals met. Whatever claims inflation the general insurers are seeing has already been priced into higher premiums, and we see potential for further increases.

This current inflationary environment has seen bond yields rise and expectations increase for significant cash rate rises. This means that the interest earnings on the premium float of insurers are rising and will add meaningfully to profits.

Maughan names supermarkets as having inflationary pricing power, too. He reckons Coles Group Ltd (ASX: COL) is worth a look.

Maughan said:

Coles… and Woolworths… are increasing prices with food inflation, and all of our channel checks suggest there is more of this to come as supplies continue to be disrupted by war, plagues, and floods. The evidence so far suggests that no one in the industry is sacrificing their margins to take market share… We expect supermarkets will continue to be key defensive havens as inflation accelerates.

So, these are the sectors that this fund manager is looking to in this brave new world of higher inflation. Pricing power is the key, and it seems that ‘boring’ shares like IAG, Suncorp, and Coles are the ASX shares that this expert reckons will do just fine.

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Pro Medicus Ltd., WiseTech Global, and ZIPCOLTD FPO. The Motley Fool Australia has positions in and has recommended COLESGROUP DEF SET, Insurance Australia Group Limited, Pro Medicus Ltd., and WiseTech Global. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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