Goldman Sachs says that if fears of stagflation continue to grow, stocks with pricing power will likely thrive.
It lists a slew of names, including Nike (NKE) - Get NIKE, Inc. (NKE) Report, Philip Morris (PM) - Get Philip Morris International Inc. Report, 3M (MMM) - Get 3M Company Report and Adobe (ADBE) - Get Adobe Inc. Report.
“Stocks with strong pricing power have recently lagged but appear attractive if stagflationary concerns continue to build,” Goldman analysts led by David Kostin wrote in a commentary.
“If inflation remains high alongside a weakening economic growth outlook, firms with strong pricing power should be best-positioned to maintain profit margins despite slowing revenue growth and rising input costs.”
To be sure, the analysts aren’t convinced that inflation is here to stay. Consumer prices leaped 5.4% in the 12 months through September.
“Despite near-term uncertainty, we expect the equity market will continue to rally, as investors gain confidence that the current pace of inflation is transitory,” the analysts said.
“Supply chain concerns are already driving sharp changes to near-term earnings-per-share estimates and share prices. We expect that dynamic will characterize the upcoming third-quarter earnings season.
“However, our economists expect core personal consumption expenditures inflation will peak at the end of this year at 4.25%, and our commodity strategists’ forecasts show a similar trajectory for the price of oil.”
The core PCE inflation index gained 3.6% in August year-on-year. U.S. oil recently traded at $81.13, up 0.86%.
Other stocks cited by Goldman as wielding pricing power include Schlumberger (SLB) - Get Schlumberger NV Report, Johnson & Johnson (JNJ) - Get Johnson & Johnson (JNJ) Report, Illinois Tool Works (ITW) - Get Illinois Tool Works Inc. (ITW) Report, Oracle (ORCL) - Get Oracle Corporation Report, PPG Industries (PPG) - Get PPG Industries, Inc. Report, Cable One (CABO) - Get Cable One, Inc. Report and Burlington Stores (BURL) - Get Burlington Stores, Inc. Report.