U.S. inflation as measured by the CPI rose 7 percent in 2021, which is the biggest rise since 1982. Over the last decade, central banks in developed markets have been taking steps to increase inflation. However, over the last year, inflation is running way above what central banks are comfortable with. In an inflationary environment, stocks with pricing power tend to do well. What are some of the pricing power stocks that you can consider in 2022?
Inflation has proved to be a lot stickier than what the Fed envisioned a few months ago. The Fed doesn't call inflation “transitory” anymore and it's on track to raise rates in 2022.
U.S. inflation is running at a multi-decade high.
Looking at the recent uptrend in commodity prices and the expected supply-side disruptions amid the rising global cases of the omicron variant of the COVID-19 virus, inflation looks like it's here to stay for some time. As a result, it's important to look at stocks with good pricing power. These companies can transfer the input cost hikes to buyers much easier than other companies.
Goldman Sachs identified some power stocks.
In 2021, Goldman Sachs identified several stocks that have pricing power. The list had large-cap names like Proctor & Gamble, Nike, Oracle, and PPG Industries. Goldman Sachs also identified several small-cap stocks including KB Home, Weber, Brinks Company, Green Plains, and Evoqua Water Technologies.
Of these stocks, Nike looks like a good stock. The company has a strong brand and should be able to pass on higher costs to buyers easier. The company’s Greater China operations are also on track for a recovery in 2022. Nike stock has come off its highs and at these prices, it looks like a good pricing power stock to buy.
UBS also identified stocks with pricing power.
UBS identified several stocks with pricing power that it thinks can outperform amid high inflation. The stocks include Starbucks, Moelis, Hasbro, Dominion Energy, Hilton Worldwide, and SolarEdge Technologies.
Starbucks and SolarEdge look like good buys. SolarEdge stock has fallen sharply amid the sell-off in renewable energy companies. However, over the last month, several brokerages have taken a bullish view of SolarEdge stock. Goldman Sachs and Cowen have listed the stock as a top pick for 2022.
On Jan. 13, Guggenheim upgraded the stock from a “neutral” to “buy.” While Guggenheim thinks that the company still has challenges, it thinks that SolarEdge stock is a good buy at these prices.
Apple and Tesla also have good pricing power.
Apart from the names suggested by these two brokerages, Apple and Tesla are two of the other stocks that have formidable pricing power. In 2021, Tesla raised car prices multiple times amid rising input costs. In 2022, Tesla has increased the price of its FSD (full-self driving) subscription from $10,000 to $12,000.
Over the years, Tesla has gradually lowered vehicle prices to pass on the lower production costs to buyers. However, the company has good enough pricing power, which it demonstrated in 2021.
Apple is another company with good pricing power. The company’s products have a pull factor and it has the ability to increase the prices. Incidentally, Apple is also expected to enter the EV industry. Even the staunchest Tesla bulls see Apple’s entry into the EV industry as the biggest risk for Tesla.