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Goldman Likes P&G, J&J, Nike, Others for Their Pricing Power

'Recent outperformance of stocks with high pricing power reflects investor concern about inflation and margin pressures,' Goldman said.
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With inflation on the rise, and investors concerned about whether that will dent profit margins, companies with pricing power are looking good, Goldman Sachs says.

It put together a list that includes Procter & Gamble  (PG) - Get Free Report, Kinder Morgan  (KMI) - Get Free Report, Johnson & Johnson  (JNJ) - Get Free Report, Nike  (NKE) - Get Free Report. Costar  (CSGP) - Get Free Report, Oracle  (ORCL) - Get Free Report and PPG Industries  (PPG) - Get Free Report.

“The recent outperformance of stocks with high pricing power reflects ongoing investor concern about inflation and margin pressures,” wrote Goldman strategists led by David Kostin.

“Since the start of October, a basket of stocks with pricing power evidenced by high and stable gross margins has outperformed stocks with low and variable gross margins by 7 percentage points (10% vs. 3%),” they said Friday evening.

“High pricing power stocks outperformed in 2018 and 2019, as investors focused on margin pressures from wage growth and trade conflicts. And they should outperform [again] if supply chain disruptions and margin pressures continue to worsen.”

To be sure, “stocks exposed to these disruptions, such as those with supply chains in China and consumer goods companies, should outperform if the outlook improves.”

Goldman said other stocks that have pricing power, in addition to those mentioned above, include Tractor Supply  (TSCO) - Get Free Report, Philip Morris  (PM) - Get Free Report, Zoetis  (ZTS) - Get Free Report, 3M  (MMM) - Get Free Report, Adobe  (ADBE) - Get Free Report and Corteva  (CTVA) - Get Free Report.

P&G closed at $144.96 Monday, down 0.74%.

Morningstar analyst Erin Lash puts fair value at $118. 

“Even as its top line appears healthy, P&G is facing unrelenting commodity cost inflation that management has qualitatively pegged as some of the most significant in some time,” she wrote last month.