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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 Procter & Gamble Company Report, Kinder Morgan  (KMI) - Get Kinder Morgan Inc Class P Report, Johnson & Johnson  (JNJ) - Get Johnson & Johnson Report, Nike  (NKE) - Get NIKE, Inc. Class B Report. Costar  (CSGP) - Get CoStar Group, Inc. Report, Oracle  (ORCL) - Get Oracle Corporation Report and PPG Industries  (PPG) - Get PPG Industries, Inc. 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.”

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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 Tractor Supply Company Report, Philip Morris  (PM) - Get Philip Morris International Inc. Report, Zoetis  (ZTS) - Get Zoetis, Inc. Class A Report, 3M  (MMM) - Get 3M Company Report, Adobe  (ADBE) - Get Adobe Inc. Report and Corteva  (CTVA) - Get Corteva Inc 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.