These listed companies are the most inflation resistant

(BFM Bourse) – The rise in prices is stronger and more stable than expected. The cost of living is rising from month to month, while the growth shows signs of weakness. The combination of these two phenomena gives rise to the specter of a carpetbag “stagflation” that combines inflation and economic stagnation. In this context, what stocks could get through this inflationary turbulence without much damage?

The French economy must go through a difficult period, acknowledges Economy Minister Bruno Le Maire. The latter stressed in early May that France “is going through significant economic difficulties.” Prices continued to rise in April, amounting to +4.8% y/y, after +3.6% in February and +4.5% in March. Inflation should continue to accelerate and could reach 5.4% y/y in June. In addition, French economic growth has stalled and is expected to pick up slightly by 0.25% in the second quarter.

In the United States, inflation is also a concern for everyone and the US Federal Reserve in particular. In March, it accelerated to 8.5% year on year, a level not seen in 40 years, according to the Bureau of Labor Statistics. In April, inflation fell very slightly to 8.3% y/y. While price increases remain stronger and longer than expected, the Fed has just initiated a monetary tightening to try to manage the runaway price increase exacerbated by the Ukraine conflict. Because when faced with rising inflation, central banks end up raising interest rates, at the risk of truly halting an already sluggish growth.

There are all prerequisites for seeing the risk of establishing “stagflation” in the world economy. The wallet word “stagflation” – short for “stagnation” and “inflation” – reeks of the 1970s, when oil shocks caused prices to skyrocket and created the first budget deficit.

The first traces of the term “stagflation” appeared in the 1960s, well before the first oil crisis in 1973. On November 17, 1965, British Conservative MP Ian McLeod was the first to use the word “stagflation” for the economic situation across the English Channel. “Now we have the worst of both worlds: not only inflation on the one hand or stagnation on the other, but both at the same time. We have a kind of “stagflation” situation, he said in the House of Commons.

“Price strength” values, anti-stagflation shield, but…

In this context, not all companies are in the same boat. Inflation is increasingly becoming a discriminatory factor for listed companies. They are forced to choose between two choices: either they bear the brunt of price increases at the risk of shrinking their margins, or they can set their own prices and impose them on their clients without affecting the Claim. These companies do not have magic power, but “pricing power.”

Stocks in the luxury goods sector are champions in this area, and price is an effective lever to keep the goods being sold desirable. The more expensive the coin, the higher its force of attraction. Companies in this sector, especially in France, have built their reputation on this premise. LVMH, Hermès and Kering have historically had strong pricing policies. With one caveat, this sector is very susceptible to the influence of China and, consequently, the tightening of local authorities regarding the consumption of high-end products, as well as sanitary restrictions in the country. In addition, the stock market results of LVMH (-21.90%), Kering (-36%) and Hermès (-32%) since the beginning of the year indicate the strong weight of the Chinese economy in their activities.

Major tech brands like Apple or Microsoft regularly raise prices. The latter is also a marketing argument for the apple brand. UBS analysts have included Apple among the 10 US listed companies that currently have the most price power. However, the group is not immune from falling markets. Like other tech stocks, the Apple brand is sensitive to tightening interest rates. Since the January 3 record, Apple’s capitalization has melted by almost $700 billion, losing the crown of the world’s capitalization king to Saudi oil giant Aramco!

Revenge of industrial shares

The strength of “price power” is not specific to the luxury or technology sector, as many industrial stocks use the same mechanism to maintain their margins. Glass container manufacturer Verallia was able to raise its own prices by 10% without losing its customers. Since the last (excellent) quarterly publication, the title of European leader and the world’s third largest manufacturer of glass containers for beverages and food has taken revenge, adding 15% on the stock market.

However, things are going far, the concern has concentrated the concerns of investors while it is a major consumer of raw materials (gas, electricity, glass sand). His usual account is almost 20% of turnover, enough to fuel concerns about the glassmaker.

Little known to the general public, the SergeFerrari group is also a master in the art of “price power”. The company, which makes composite fabrics for lightweight architecture, posted very strong first-quarter results. Driven by rising selling prices, the Dauphinois group has the luxury of raising its annual target and thus aiming for double-digit growth this year.

Rexel can also be noted, whose price effect in no way deterred the distributor’s customers specializing in energy-related products and services at the start of the year. Even better for Rexel, continued supply chain tensions give the group an opportunity to continue to “help its customers manage product shortages and workforce availability, which will enable them to improve their operational efficiency,” the group emphasizes. Its order books are also growing in major countries thanks to strong demand. Moreover, the group’s recent stock market performance makes Rexel a potential candidate for entry into the CAC 40, which it recently joined ahead of the Next 20.

French-speaking chemical players Solvay and Arkema have also cleverly integrated cost increases into their selling prices. On the occasion of its quarterly review in early May, Arkema announced a price effect of +31.5% (!) which the group believes reflects its ability to “transfer in the selling prices of its specialty materials the strongest inflation in raw materials, energy and transport, as well as best conditions in acrylic upstream”.

This volley of inflation-laden periodicals provides the first indication of the ability of companies to force price increases on their customers without losing them. But “price power” isn’t everything, the market environment can play the role of a spoiled sport like Apple or luxury values ​​just to name a few…

Sabrina Sadgi

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