Inflation is a growing concern for investors, and the Australian stock market is not immune to its effects. In this article, we will discuss our favourite ASX stocks that we believe can outperform inflation in 2023.
Woolworths (ASX: WOW)
First on our list is Woolworths. Woolworths shares have remained resilient, thanks to the company’s ability to pass on inflation costs to consumers. This lifted the company’s net profit after tax by 14%, and its half-year dividend by 18%.
We maintain our BUY rating on WOW shares as we see the company benefiting from a positive valuation re-rating. The recent divestment of its drinks and hotel business has made WOW more attractive to Ethically focused (ESG) investors. We also see organic growth from core operations and expansion from bolt-on acquisitions or synergies. Additionally, the worst of covid-related lockdowns and elevated costs and supply chain issues should be behind the business.
QBE Insurance (ASX: QBE)
Next on our list is QBE Insurance. QBE shares were up strongly after delivering a well-received result for the 2022 financial year, with earnings coming in at $847m, well ahead of expectations. The result was driven by top-line growth, gross premium growth, and strong investment income. NPAT beat by ~15-21% on the back of stronger investment income & a new reinsurance deal with Enstar which sees the company’s reserve risk reduce significantly.
We maintain our BUY rating on QBE given the positive earnings outlook and better risk management compared to other Australasian-based insurance companies. We see potential for a re-rate from QBE’s forward price-to-earnings ratio (P/E) of 8.5x to move to 11-12x earnings, as QBE appears to be performing much better than its local Australasian insurer peers.
Aristocrat Leisure (ASX: ALL)
Finally, we have Aristocrat Leisure. Aristocrat shares have been slipping lower despite delivering a sound full-year result, where operating revenue rose 17.7% and net profit after tax rose 27.1% as casinos and travel reopened. Management also expects to achieve strong growth in the US market. The company’s expansion into digital gaming, which saw revenue rise 23.6%, is also promising. Looking ahead, Aristocrat is well-positioned to benefit from further recovery in the global gaming industry, as well as continued growth in digital gaming. The company has a strong pipeline of new games and technologies, as well as a growing presence in the fast-growing online gaming market.
We maintain our BUY rating given the company’s strong growth prospects and solid financial performance.