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

Biotech Insider Alert - $6 Stock To Hit $40

$200 Million Dollar Healthcare Hedge Fund's #1 Best Idea Right Now

The best healthcare hedge fund out there right now is one of the largest shareholders in this biotech stock. The fund returned more than 20% in each of the last 2 years with a virtually fully hedged portfolio, and it's sending out a BUY signal on this biotech stock. Get your FREE REPORT today (retail value of $300)

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

Most Famous Gay Athletes

The World’s Most Famous Circuses

Best Hair Stylists

Most Popular NASCAR Drivers

The Best Romance Movies of all Time

The Most Wanted Drug Lords

The Oldest Money Managers

The Greatest Directors in the World

Largest Animals in the World

World’s Most Expensive Desserts

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Best Travel Destinations in Australia

World’s Most Expensive Musical Instruments

World’s Most Famous Animals

Most Expensive Cakes in the World

Most Expensive Kosher Champagne in the World

Most Expensive Kosher Wine in the World

The Most Surprisingly Dark Fairy Tales

Most Popular Travel Destinations in Asia

The 10 Most Expensive Dresses Ever Worn to the Oscars

World’s Most Visited Art Museums

Best Countries for Photographers to Work in

Best Paid Jobs in the Film Industry

The Most Renowned Recovered Paintings Ever

Child Stars That Turned out Just Fine

Books That Were Banned in the Past Century

World’s Richest Dancers

Best Remedies against Bad Breath

Foods That Improve Your Skin Texture

Best-Selling Children’s Books of all Time

Foods That Boost Your Libido

Best-Selling Books of all Time

The Most Expensive Academy Awards Jewelry in History

Most Expensive Japanese Restaurant In New York City

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 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!