The economy is suffering its worst inflation in more than 40 years. In an inflationary environment, investors should look to be on companies that possess sufficient pricing power, with products and services that face inelastic demand. Since many analysts expect inflation to continue trending higher despite interest rate increases, we think it could be wise to bet on ABB (ABB), Olin (OLN), Dow (DOW), and Costco (COST), which we think can survive even higher inflation. So, let’s discuss these names.
Concerns over record-high inflation, supply chain constraints, a continuing war between Russia and Ukraine, and expected aggressive interest rate hikes by the Federal Reserve have kept the stock market under pressure. Many analysts expect these lingering issues, coupled with high energy prices, to foster a recessionary environment.
Last week, Fed Chairman Jerome Powell indicated an interest rate hike of 50 basis points in May to restore price stability. However, the global supply disruptions and bans on Russian oil, natural gas, and crucial commodities are expected to push inflation to new highs. In addition, the March jobs data suggested a tight labor market.
Because many economists expect the inflationary pressure to persist longer than expected, stocks possessing sufficient pricing power from companies whose products and services have inelastic or near-inelastic demand should be the ideal investments to weather inflation. The pricing power of ABB Ltd (ABBOlin Corporation (OLN), Dow Inc. (DOW), and Costco Wholesale Corporation (COST) should help them survive even higher inflation. So, we think these stocks could be solid bets now.
ABB Ltd (ABB)
Headquartered in Zurich, Switzerland, ABB manufactures and sells electrification, automation, robotics, and motion products for customers in utilities, industry, transport and infrastructure. Its segments include Electrification Products, Robotics and Motion, Industrial Automation, Power Grids, and Corporate and Other.
On April 1, 2022, ABB launched its new share buyback program of up to $3 billion. The share buyback is consistent with ABB’s intention of returning $1.20 billion of the $7.80 billion of its cash proceeds from the divestment of its power grid to its shareholders.
ABB’s revenues increased 0.9% year-over-year to $6.96 billion for the first quarter, ended March 31, 2022. The company’s income from operations increased 7.5% year-over-year to $857 million. Also, its net income increased 20.3% year-over-year to $604 million. In addition, its operational EBITA increased 3.9% year-over-year to $997 million.
Analysts expect ABB’s EPS and revenue for its fiscal 2023 to increase 15.1% and 6.8%, respectively, year-over-year to $1.83 and $31.96 billion. It surpassed the Street EPS estimates in three of the trailing four quarters. And over the past six months, the stock has declined 8.9% in price to close the last trading session at $30.23.
ABB’s POWR Ratings reflect solid prospects. According to our proprietary rating system, it has an overall B rating, which translates to a Buy. The POWR Ratings assesses stocks by 118 distinct factors, each with its own weighting.
It has a B grade for Stability and Quality. It is ranked #24 out of 76 stocks in the B-rated Industrial – Machinery industry. Click here to see the other ratings of ABB for Growth, Value, Momentum, and Sentiment.
Click here to check out our Industrial Sector Report for 2022
Olin Corporation (OLN)
OLN in Clayton, Miss., produces and sells chemical products in the United States, Europe, and globally. It operates in three segments: Chlor Alkali Products and Vinyls; Epoxy; and Winchester.
On April 28, 2022, OLN announced the signing of a memorandum of understanding to create a joint venture with Plug Power, Inc. (PLUG) to produce and market green hydrogen to support growing fuel cell demand in the global hydrogen economy. OLN’s Chairman, President, and CEO Scott Sutton said, “Olin’s 130-year history of producing hydrogen as part of our Chlor alkali production process combined with Plug Power’s leadership in the green hydrogen economy creates a powerful partnership to serve the growing demand for green hydrogen .”
For its fiscal first quarter, ended March 31, 2022, OLN’s sales increased 28.2% year-over-year to $2.46 billion. The company’s net income increased 61.3% year-over-year to $393 million. Also, its EPS came in at $2.48, representing a 64.2% year-over-year increase. In addition, its adjusted EBITDA increased 31.5% year-over-year to $710.90 million.
For the quarter ending March 31, 2022, OLN’s EPS and revenue are expected to increase 52.6% and 28.3%, respectively, year-over-year to $2.35 and $2.46 billion. It surpassed consensus EPS estimates in three of the trailing four quarters. And over the past year, the stock has gained 26.3% in price to close its last trading session at $53.26.
OLN’s POWR Ratings reflect solid prospects. The stock has an overall B rating, which equates to a Buy in our proprietary rating system.
It has a B grade for Value and Quality. Within the A-rated Chemicals industry, it is ranked #22 of 89 stocks. To see the other ratings of OLN for Growth, Momentum, Stability, and Sentiment, click here.
Note that OLN is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Growth portfolio. Learn more here.
Dow Inc. (DOW)
DOW is the holding company for the Dow chemical company and its subsidiaries. The Midland, Mich.-based The company’s portfolio of plastics, industrial intermediates, coatings, and silicones businesses delivers a range of science-based products and solutions for its customers in various market segments, such as packaging, infrastructure, mobility, and consumer care.
On January 25, 2022, DOW announced an agreement with Locus Performance Ingredients to sell its high-performance sophorolipid biosurfactants in the global home care and personal markets. The ingredients offer a substantial reduction in carbon footprint compared to conventional surfactants. The agreement should enable DOW to strengthen its position in the biosurfactants market.
DOW’s net sales increased 28.4% year-over-year to $15.26 billion for the first quarter, ended March 31, 2022. The company’s net income increased 54.2% year-over-year to $1.55 billion. Also, its EPS came in at $2.11, representing a 59.8% year-over-year increase.
Analysts expect DOW’s revenue for the quarter ending June 30, 2022, to increase 11.8% year-over-year to $15.52 billion. Its EPS is expected to grow 59.7% per annum over the next five years. It surpassed the Street’s EPS estimates in each of the trailing four quarters. Over the past six months, the stock has gained 19.8% in price to close the last trading session at $67.81.
DOW’s strong prospects are reflected in its POWR Ratings. The stock has an overall B rating, which equates to a Buy in our proprietary rating system.
It has an A grade for Value and a B grade for Sentiment and Quality. It is ranked #17 in the Chemicals industry. Click here to see the other ratings of DOW for Growth, Momentum, and Stability.
Costco Wholesale Corporation (COST)
Famous membership warehouse operators COST in Issaquah, Wash., offers branded and private-label products throughout a range of merchandise categories. It operates across the US, Canada, United Kingdom, Japan, and China. In addition, its broad product portfolio includes almost everything from dry groceries to automotive care products. It currently operates 824 warehouses.
COST’s total revenue increased 15.9% year-over-year to $51.90 billion for the second quarter, ended Feb. 13, 2022. The company’s attributable net income increased 36.5% year-over-year to $1.29 billion. Also, its EPS came in at $2.92, representing an increase of 36.4% year-over-year.
For its fiscal year 2022, COST’s EPS and revenue are expected to increase 18.2% and 13.2% year-over-year to $13.11 and $221.76 billion, respectively. It surpassed consensus EPS estimates in each of the trailing four quarters. And over the past year, the stock has gained 52% in price to close the last trading session at $562.
COST’s POWR Ratings reflects this promising outlook. The stock has an overall B rating, which equates to a Buy in our proprietary rating system.
It has a B grade for Stability and Sentiment. It is ranked #22 out of 39 stocks in the A-rated Grocery/Big Box Retailers industry. Click here to see the additional ratings of COST for Growth, Value, Momentum, and Quality.
ABB shares rose $0.32 (+1.06%) in premarket trading Friday. Year-to-date, ABB has declined -19.55%, versus a -9.65% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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