Business

Here’s a list of 50 companies well-equipped to fight back inflation

Another trend reversal may be on the cards Tuesday after a litany of concerns including stagflation battered the S&P 500 SPX.
-3.20%
below 4,000 for the first time since 2021.

As investors try to recover from the worst three-day stock market meltdown in two years, another tough selling day could be a good thing for the S&P, claims JonesTrading chief strategist Michael O’Rourke.

A push into “bear market territory” — commonly defined as a 20% decline from recent highs — would prime the S&P for a technical bounce ahead of Wednesday’s CPI read, he tells clients. Data showing that March’s 8.5% print was an inflation peak — 8.1% is expected — should give stocks a “psychological boost,” O’Rourke adds.

On our call of the day by AllianceBernstein analysts, who say the key to downside protection in a market facing persistent and higher inflation is “owning names that have pricing power.” Heading into the second half of 2022, they’re offering an update on a popular strategy of the last year or so and a new list of companies that fit the bill.

“We use gross margin to define pricing power because a company’s ability to grow revenue in the face of rising costs helps us determine which firms will be able to effectively pass increasing expenses on to consumers,” writes a team of Bernstein analysts led by Ann Larson.

The Bernstein Pricing Power Indicator ranks companies based on their ability to manage or improve their gross margins. The calculations factor in the past two years of gross margin growth, along with gross margin stability over the past seven years. These metrics are standardized across industries to produce a final pricing power score, using return on equity rather than gross margin for financials.

“Using this methodology, we found that stocks in the top quintile of our Pricing Power Indicator consistently outperformed those in the bottom quintile during US inflation bouts. On average, outperformance was ~430 basis points per year,” said Larson and the team.

Here’s another chart showing that:

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Admittedly, they say this wasn’t an entirely smooth strategy. High-priced power stocks rebounded in the last three quarters of 2021 after underperforming in the second half of 2020 and the first quarter of 2021. Year-to-date returns “have been inconsistent this year given the large factor rotations and volatility we’ve seen so far,” says Bernstein.

So here is their list of US stocks with a market value greater than $5 billion in the top quintile of pricing power and in the top two quintiles of positive selling revisions. Among the top five are UnitedHealth UNH,
-2.64%,
Walmart WMT,
+1.17%,
Costco COST,
-0.90%,
US Bancorp USMT,
+0.91%
and waste management WM,
-1.57%.

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The Buzz

main field PTON,
-10.00%
collapses with pessimistic outlook. Planet Fitness PLNT,
-7.85%
achieved a profit that exceeded expectations. and Norwegian Cruise Line NCLH,
-12.70%
is up despite an unexpectedly large loss and decline in sales.

After the close of trading, we hear from Electronic Arts EA,
-2.82%
and Roblox RBLX,
-11.51%.
Coinbase COIN also reported belatedly,
-19.50%,
the crypto exchange that could get additional attention as shares have plunged 80% from a November high amid a market slump.

A disappointing outlook hits shares of AI lending platform Upstart UPST,
-8.06%
and drug price comparison group GoodRx DDRX,
-15.62%.
theater chain AMC AMC,
-9.01%
reported a better than expected quarter.

Biohaven Pharmaceuticals BHVN,
-7.88%
Stocks are up more than 70% after Pfizer PFE,
-0.82%
announced a $11.6 billion deal to buy a biopharmaceutical group.

The Fed will succeed in cooling inflation and keeping economic growth afloat, said New York Fed President John Williams. A day earlier, the central bank had warned that high inflation and tightening monetary policy, combined with the war in Ukraine, are causing liquidity problems in financial markets.

President Joe Biden will speak at 11:30 a.m. ET on his administration’s attempts to curb inflation. A small business sentiment index stabilized for the first time in three months. An estimate of real household debt for the first quarter is due later.

Auto sales in China fell 36% annually in April thanks to the COVID lockdowns.

After ‘Victory Day’, Russia has shelled Ukraine’s vital port of Odessa, as well as the embattled Mariupol Steelworks.

The markets
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stock futures YM00,
+0.59%

ES00,
+0.66%

NQ00,
+1.11%
pushing higher, with bond yields of TMUBMUSD10Y,
3.011%

TMUBMUSD02Y,
2.589%
lower and the dollar DXY,
-0.01%
higher.

oil prices CL00,
-0.76%
are slightly lower.

Read: The Crypto Crash Continues; Why Has Bitcoin Dropped 55% in the Last 6 Months?

The tickers

These were the most searched tickers on MarketWatch as of 6 a.m. Eastern Time.

Random Reading

Andy Warhol’s iconic portrait of Marilyn Monroe has sold for $195 million, the highest price ever paid for an American work of art.

Best Buy employees get high marks for some athletic, thief-blocking moves:

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https://www.marketwatch.com/story/heres-a-list-of-50-companies-that-are-well-armed-to-beat-back-inflation-11652181069?rss=1&siteid=rss Here’s a list of 50 companies well-equipped to fight back inflation

Brian Lowry

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