4 Stocks That Could Thrive During Inflation

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Inflation is hot—and that’s cooling off plenty of companies’ earnings. But not all of them, and those are the stocks to scoop up now.

The latest consumer price index, out Thursday, showed an annual inflation rate of 7.5%, higher than the 7.2% that economists had forecast. Prices are increasing at their fastest pace in 40 years. The Fed is now in inflation-fighting mode and appears set to raise rates at least seven times by the end of the year, far more than had been expected at the end of 2021.

Companies are trying to keep rising prices from eating into their profit margins, often with little success, as margins have slipped to 14.8% during the fourth quarter from 15.2% during the third quarter, according to Wells Fargo data.

But not everyone is suffering. Some companies are able to raise prices without destroying too much demand for their products—and those are the ones investors should want to own.

Caterpillar

(ticker: CAT), for one, is lucky enough to have customers flush with cash from rising commodity prices, so it’s easy to get them to pay up. And pay up they did. After reporting its latest financial results, management said pricing had “picked up” in the third and fourth quarters of 2021, helping earnings top estimates by 17%. At $201.24, the stock is down 2.4% this year but beating the S&P 500’s 7.3% loss.

Like Caterpillar,

CNH Industrial

 (CNHI), which makes farm equipment, trounced profit estimates—by 19%. On its earnings call, the company attributed the blowout to higher prices, especially in its North America business. They can thank the soaring price of farm products like soybeans and corn for that. The stock, at $16.15, has dropped 4.9% this year.

Procter & Gamble

 (PG), which beat earnings estimates on Jan. 19, was also able to charge more for their products, and plans to lift prices throughout the coming year. That makes sense for a company that sells paper towels, diapers, toothpaste, and other products people really need. The stock, at $156.29, is down 4.5% this year, but if earnings grow that should change.

People don’t need what

Philip Morris

(PM) sells, they just think they do—and that’s just as good. The cigarette maker, which scored an earnings beat on Thursday, said it raised prices on its traditional cigarettes and its smokeless IQOS products, and management expects to keep increasing prices throughout the year. Its shares, at $107.96, have gained 14% this year.

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com