Some UK shares have seen a lot of volatility in the last couple of weeks. Whether it’s because of inflation or supply chain disruptions, the rising level of uncertainty has been quite unpleasant to watch. Yet even during this time of chaos, I’ve found two stocks that stand out to me as no-brainer investments for my portfolio. Let’s dive in.
The UK share profiting from inflation
Inflation is obviously bad news for consumers. After all, the rising cost of living doesn’t exactly help protect or build wealth. But in the case of banking, this is actually fantastic news. Why? Because when inflation is on the rise, the Bank of England can and is raising interest rates to counter this effect. Consequently, banks like Lloyds (LSE:LLOY) can start charging higher interest on the loans they issue to businesses and individuals alike.
While it’s a bit more complicated than that in practice, the end result is increased profit margins on all lending activity. And since Lloyds generates nearly 75% of its gross income through issuing loans like mortgages, this could mean its bottom line is about to seriously expand.
This is not guaranteed, of course. There are still many companies limping on with the ongoing devastation of the pandemic. And it’s possible the increase in interest rates could lead to a rise in defaults. Needless to say, that could quickly eliminate the benefit of the wider margins, sending the UK share plummeting in the process.
Despite this risk, I think the favourable change in the lending environment could yield a lot of rewards for my portfolio. Hence why I believe this stock is a no-brainer investment. But it’s not the only one on my radar.
More bricks are needed
Ibstock (LSE:IBST) hasn’t had the best of runs lately. With the pandemic causing building projects to be delayed, the brickmaker saw revenues plummet by double-digits in 2020 — falling by nearly 25%.
Since then, the situation has improved. In the latest earnings report, management stated demand for its construction materials is on the rise. And that’s despite the price inflation of clay caused by the supply chain disruptions. This means management was successfully able to pass on this cost to customers.
Consequently, total sales for the whole of 2021 are expected to be around £409m. That’s 29% higher versus 2020 and is in line with pre-pandemic levels.
There are still some unknowns surrounding this business. Shortages of HGV drivers continue to pose potential problems when delivering products to a construction site. Meanwhile, if the housing market starts to slow due to rising interest rates, it could reduce buying activity. This would subsequently lead to fewer construction projects, which in turn, would lead to a drop in demand for Ibstock’s products.
That would obviously be bad news for the share price of this UK business. But over the long term, I don’t think the demand for housing is likely to disappear. Therefore I believe this is a risk worth taking for my portfolio.
But it’s not the only one. There plenty of other inflation-beating investments out there that could be even better than these two stocks. For example…
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Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended Ibstock and Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
