Editors' pick: Originally published Feb. 25.
Which companies have the best opportunities to raise prices on their products or services without lessening consumer demand for them? According to a Morgan Stanley report out this week, these 18 companies have the strongest pricing power.
"While assessing a company's pricing power has long been a cornerstone of bottom-up investment research, it is arguably even more critical in the current environment," the Feb. 23 report read.
U.S. consumer price inflation may be inching higher, with the Consumer Price Index rising 0.3% in January, excluding food and energy, according to the Labor Department. However, Morgan Stanley's Feb. 23 report noted that "core goods prices are largely determined by external developments," such as the U.S. dollar, global growth and commodity prices. Hence, January's uptick in inflation is not likely to be sustained, it read.
Morgan Stanley analysts were asked to name stocks among their coverage lists that are expected to "exercise pricing power in the near- to medium-term as well as exhibit key indicators that would serve as evidence of that pricing power." The selections were limited to stocks with buy- or hold-equivalent recommendations as well as those for which the ability to raise prices was a "needle-mover" for company profit, the note said.
"Our list includes healthcare companies that focus on innovation, ones that have recurring revenue models with a value proposition that emphasizes location, ones that possess strong brands in growing categories, and some that offer consumables with low demand elasticity," the report said.
Below are the 18 stocks with the strongest pricing power, according to Morgan Stanley. We've paired the list with commentary from Jim Cramer, if the stock is owned by his Action Alerts PLUS charitable trust portfolio.