ASX stocks to buy: Broker says supermarkets and miners offer shelter as interest rates rise
With another Reserve Bank rate rise looming and household budgets under pressure, Morgans is backing supermarkets, miners and offshore earners to help investors weather a slowing economy.
Investors should favour supermarkets, miners and companies earning profits offshore as rising interest rates and living costs threaten to squeeze Australian households and weigh on the domestic economy, according to stockbroker Morgans.
Wednesday’s stronger-than-expected inflation data has reinforced expectations the Reserve Bank will lift interest rates for a fifth time this year on Melbourne Cup Day, taking the cash rate up 25 basis points to 4.85 per cent, its highest level in 18 years.
Morgans warns rising borrowing costs are not the only headwind facing the economy and share market.
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While lower immigration could dampen demand for goods and services and leave labour shortages in key industries such as hospitality and agriculture.
Feeble productivity growth is also putting a cap on companies’ profit growth, as workers produce less output per hour worked.
Morgans says all these factors point to slower economic growth, but don’t have to translate into lower returns for investors.
Supermarkets for defensive profits
To avoid the falling share prices associated with an economic downturn, the broker says to look to retailers such as supermarkets.
“Following the RBA’s recent rate hikes amid persistent inflation, consumers are becoming increasingly value-conscious - eating at home more frequently, reducing shopping trips to save on fuel, and favouring promotions,” said investment strategist Andrew Tang.
“Should rates rise further and inflation remain elevated, these behaviours are likely to persist.”
Woolworths shares have surged 39 per cent in 2026, compared with a 0.1 per cent decline in the benchmark S&P/ASX 200 index.
The supermarket group reported on Wednesday that Australian food sales rose 6.9 per cent in the three months to September 30, as customers flocked to household staples such as mince meat to stretch their budgets.
Morgans said Coles and Woolworths are appealing as consumers cut spending on discretionary items, but warned this is not a secret and that their share prices are now relatively high.
Morgans instead favours Bunnings and Kmart owner Wesfarmers, as a way for investors to build wealth while the economy faces mounting pressure in the final quarter of the year.
“We continue to view the consumer staples sector as relatively attractive during periods of market volatility,” said Tang. “Its defensive characteristics, supported by population growth and a steadily growing dividend stream, should underpin resilience.”
Investment bank Citi also sees Woolworths as an attractive business following Wednesday’s trading update, although its $36 price target sits below the stock’s last closing price of $40.82.
Citi forecasts Woolworths to pay a $1.08 per share in dividends over the 12 months to June 30, 2027, to offer a potential yield of 2.6 per cent.
Mining stocks favoured
Morgans said that corporate profits for industrial companies in the S&P/ASX 200, excluding the mining sector, had been roughly flat for the past two years, well below the long run average growth rate of 6 to 7 per cent.
The prospect of another interest rate increase adds to the appeal of commodity producers, which can grow earnings in an environment of elevated inflation, it says.
It recommends two gold miners on the S&P/ASX 200. Evolution Mining and Ramelius Resources.
“Gold remains an important portfolio diversifier against risks of structural US dollar weakness and high inflation,” it said. “The recent correction highlights sensitivity to bond yields, the USD and rates expectations, but we see good value in key gold miners.”
It’s also backing $9.2 billion copper play Capstone Copper, as a large-cap business to add to an Australian share portfolio.
The other antidote to a weak domestic economy over the next 12 months is to own businesses that earn the majority of their profits overseas, the broker said.
It points to healthcare giant ResMed and gaming machine operator Aristocrat Leisure as two businesses to own with little downside from a weak Australian economy.
