British American Tobacco [LSE:BATS]
British American Tobacco plc is a British multi-national company that manufactures and sells cigarettes, tobacco and other nicotine products. The company was established in 1902 with headquarters in London. They have operations in around 180 countries, and its cigarette brands include Dunhill, Kent, Lucky Strike, Pall Mall and Rothmans. Its new age brands also include Vype, Vuse and Glo. Cigarette smoking itself has of course been in decline for years, but there are still an estimated 1.1bn smokers worldwide. Europe has 112mn of them. Cigarette demand is what economists call “inelastic,” meaning smokers aren’t price sensitive.
Despite a constant barrage of regulation changes and a traditional industry in decline you’d be forgiven for thinking the long-term outlook for tobacco companies is bleak! The reality is the tobacco sector still has a lot going for it and are still making inroads into new world vaping products. The sector has always been appealing with the income investors as well due to the large yields on offer. Recent figures have highlighted BAT’s is still in rude health despite the backdrop.
BAE Systems [LSE:BAES]
BAE Systems plc is a British multinational arms, security, and aerospace company based in London. It is the largest defence contractor in Europe, and ranked the seventh largest in the world based on 2021 revenues. The company manufactures military aircraft, surface ships, submarines and radar systems. Its largest operations are in the UK and US, where BAE Systems Inc are one of the six largest suppliers to the US Department of Defence. Other major markets include Australia, Canada, India, Saudi Arabia, Turkey, Qatar, Oman and Sweden, where Saudi Arabia is regularly among its top three sources of revenue.
Defence companies are generally protected from inflation by contracts that allow them to pass on most cost increases to customers. Recently the UK Government decided to increase the defence budget over the next four years after years of reduced spending. With the end consumer for defence stocks being governments there is also very little chance of a drop in activity so again offering a shelter from inflation.
Rio Tinto [LSE:RIO]
Rio Tinto is an Anglo-Australian multinational and one of the world’s largest metals and mining corporations. The company was founded in 1873, when a multinational consortium of investors purchased a mine complex on the Rio Tinto, in Huelva, Spain from the Spanish government. Rio’s focus is mineral extraction however operations do expand into the refining of certain minerals, particularly bauxite and iron ore. Rio Tinto is a dual-listed company traded on both the London Stock Exchange and the Australian Securities Exchange. Additionally, American Depositary Shares of Rio Tinto’s British branch are traded on the New York Stock Exchange giving it listings on a total of three major stock exchanges.
Rio’s main commodities are aluminium, copper, diamonds, gold, iron ore, and uranium as well as industrial minerals borates, titanium dioxide and salt.
Mining stocks are also seen as a good inflationary hedge. As inflation rises so does the cost for the minerals they mine. Miners’ profits are directly tied to the price at which they can sell the metals they dig up and as the prices increase so does the profits. Of course, some metals will perform better than others so its always worth looking at a diversified mining company rather than a mining company tied to just one commodity.
Diageo is a British multi-national beverage alcohol company, with its headquarters in London. Diageo was formed in 1997 from the merger of Guinness Brewery and Grand Metropolitan. It now operates in more than 180 countries. It is a major distributor of spirits and the world’s largest producer of Scotch whisky. Diageo has a primary listing on the London Stock Exchange and is a constituent of the FTSE 100 Index. It has a secondary listing on the New York Stock Exchange. Diageo posted decent results in January, with net sales up 15.8% to £8bn and strong organic growth, despite currency fluctuations. Organic net sales were up 20%, while reported operating profits rose 22.5% to £2.7bn.
The range of products is almost as large as the countries they operate in and include various types of drink. Their portfolio includes most notably, the Scotch whisky brands, Johnnie Walker, Bell’s, Black & White, Oban, Talisker, the leading vodka brand Smirnoff, the rum brand Captain Morgan. Their liqueur brands include Baileys, Sheridan’s and Pimm’s. Their tequila brands Don Julio, DeLeón and Casamigos. They also own the leading gin brands of Gordon’s, Tanqueray, Gilbey’s and Aviation Gin and of course the beers include Guinness, Tusker, Harp Lager, Kilkenny, Senator, Meta Abo and Smithwick’s.
Diageo also owns a 34% stake in the Moet Hennessy drinks division of French luxury goods company LVMH Moët Hennessy Louis Vuitton SE.
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