Hedge Inflation With Pricing Power: The Walt Disney Company (DIS), PepsiCo, Inc. (PEP) and More

Page 1 of 2

With interest rates at historic lows and a federal government that cannot afford to have its interest payments rise, the Federal Reserve’s unprecedented Quantitative Easing program has no end in sight. Cheap money inevitably leads to inflation. So, whether it is apparent in current economic statistics or not, above-average rates of inflation are undoubtedly in our future.

Inflation has a disproportionate impact on the poor and elderly. The poor spend most of their income on essentials like food and gasoline, which are extremely sensitive to inflation. Meanwhile, the elderly usually own bonds and other “safe” assets that destroy purchasing power during periods of high inflation.

The Walt Disney Company (NYSE:DIS)But the poor and the elderly are not the only ones in trouble when high inflation creeps its way into the economy. For many companies, an increase in the price of raw materials and other inputs will crush margins and lower profits. So even people with a high allocation to equities will feel the pain of high inflation.

That is, except for investors who own businesses that have pricing power. Pricing power is the key to outrunning inflation. Companies with pricing power can pass on higher input costs to their customers that keeps profits growing at least as fast as inflation. These are the stocks you want to own in all economic environments — but especially during periods of high inflation.

A Few Companies with Pricing Power

Philip Morris International Inc. (NYSE:PM) is an example of a company with pricing power. Philip Morris has nearly a 1/3 share of the markets in which it competes most heavily. This is due to the company’s strong tobacco brands, the most famous of which is Marlboro. The addictiveness of its tobacco products lends itself to customer stickiness, but the excise taxes placed on sales of cigarettes also benefits the company. The price of all cigarette brands are already high because of the taxes, and customers have shown that they are willing to pay a few bucks more for their favorite brand.

Philip Morris also owns a number of well-known food brands. Its portfolio includes Jell-O, Cool Whip, Cream of Wheat, Honey Bunches of Oats, Chips Ahoy, Snackwells, Toblerone, and countless other brands that have cheaper knock-offs — but customers are still willing to pay more for the real brand. The aversion to off-brand products is especially strong in American consumer culture, which gives Philip Morris a high degree of pricing power.

The Walt Disney Company (NYSE:DIS) is another company that can keep margins up amid high inflation. The company owns valuable TV networks, like ESPN, that dominate their segments. Disney also owns theme parks, countless hit movie franchises (and associated merchandise), and a strong brand name that makes nearly everything it touches golden. A one-of-a-kind business like Disney can maintain margins by raising advertising rates (for its TV networks) and raising prices of valuable merchandise.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The 10 Countries with the Highest Suicide Rates

The 10 Most Technologically Advanced Countries in the World

The 10 Safest Countries in the World to Live in Peace

The 10 Top Selling Smartphones in the World 2014

The 12 Biggest Shopping Centers in the World

The 10 Friendliest Countries in the World

Qihoo 360 Technology Co Ltd (QIHU), Actavis plc (ACT), Yahoo! Inc. (YHOO) Among 20 Long Ideas from Sohn Canada

The 10 Laziest Countries in the World

The 10 Most Polluted Countries in the World

The 10 Most Dangerous Cities in America 2014

The Top 10 Gold Producing Countries in the World

The 10 Tallest Buildings in the World

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!