10 Stocks Most Affected by Inflation

In this article, we will take a look at the 10 stocks most affected by inflation.

Inflation in the US is hovering around a four-decade high, and this has caused experts to investigate its impact on different corporations. The first takeaway is that companies that are cyclical in nature and can pass on price increases to customers can safeguard their margins during periods of raging inflation. As a result, they experience growth and expansion during inflationary periods. On the other hand, companies that are carrying high levels of debt and are sensitive to interest rate changes come under pressure. This is because, during periods of high inflation, it is a common practice to increase benchmark interest rates to bring inflation under control, which leads to highly leveraged entities incurring increased financing costs. According to the financial services firm Allianz, sectors like consumer staples and utilities have had an inverse correlation with inflation rates as these businesses utilize resources that raise the cost of their inputs. In general, this has had a negative impact on their stock prices and margins. In contrast, businesses in the materials and energy industries traditionally have had a positive correlation with inflation. Inflation also causes challenges for technology companies undergoing the growth phase. However, the decline for technology companies has been much softer as compared to the dot com bubble burst in the early 2000s.

Inflation was a key topic during the Q3 2022 earnings season as well as it was discussed by the majority of the companies during their conference calls. Depending on the nature of the businesses, companies were impacted differently by inflation. Numerous leading companies were able to surpass consensus top-line and bottom-line expectations for Q3 2022 as they were able to pass the price increases on to the customers and control their cost structure, despite experiencing a decline in unit sales. In contrast, companies like Tesla, Inc. (NASDAQ:TSLA), PepsiCo, Inc. (NASDAQ:PEP), and The Procter & Gamble Company (NYSE:PG) observed rising raw material costs, resulting in a contraction in margins. As of November, inflation grew by 7.7% YoY in the US as opposed to the Federal Reserve’s long-term target of 2% only.

Our Methodology

We have analyzed the earnings reports, analyst ratings, and growth prospects of the companies to shortlist the 10 stocks most affected by inflation. While some of these companies have strong fundamentals, the raging inflation has had a strong negative impact on their operations and financial strength. We have ranked these stocks in terms of the level of hedge fund ownership as of Q3 2022.

10 Stocks Most Affected by Inflation

10. Beyond Meat, Inc. (NASDAQ:BYND)

Number of Hedge Fund Holders: 14

Beyond Meat, Inc. (NASDAQ:BYND) is a Los Angeles, California-based producer of plant-based meat alternatives for the vegan community.

The company, founded in 2009, has come under intense pressure due to declining demand for its products. The decline in demand has caused Beyond Meat, Inc. (NASDAQ:BYND) to cut its revenue guidance for FY22. Furthermore, the company has been forced to lay off 200 employees to control its costs. On December 9, Kristina Ruggeri at Argus downgraded Beyond Meat, Inc. (NASDAQ:BYND) stock from a Hold to a Sell rating as the analyst observed a diminishing demand due to high inflation. The analyst also observed that the rise in prices is causing customers to trade down to more economical choices. Ms. Ruggeri added that Beyond Meat, Inc. (NASDAQ:BYND) has also been adversely impacted by an increase in competition as other players have emerged in the plant-based meat substitute industry.

Here’s what Horos Asset Management said about Beyond Meat, Inc. (NASDAQ:BYND) in its Q1 2022 investor letter:

“What about the other asset class that has attracted the most attention from the investment community in recent times? Beyond Meat is the other company whose valuations we did not understand and whose share price has also declined drastically in the last year and a half.”

9. Whirlpool Corporation (NYSE:WHR)

Number of Hedge Fund Holders: 24

Whirlpool Corporation (NYSE:WHR) is a Benton Harbor, Michigan-based producer and seller of home appliances products.

Whirlpool Corporation (NYSE:WHR) observed a major dent in the consumption of its products during Q3 2022 due to high inflation. This caused the company to miss the top-line and bottom-line estimates for the quarter. Furthermore, Whirlpool Corporation (NYSE:WHR) has forecasted a period of softer demand moving forward, as increasing inflation is expected to have an impact on the consumers’ budgets in 2023 as well.

In a research note issued to investors on October 26, Elizabeth Suzuki at Bank of America downgraded Whirlpool Corporation (NYSE:WHR) stock from a Neutral to an Underperform rating with a target price of $119 as opposed to the previous target price of $156. The revised target price represents a potential downside of over 17% from the closing price of December 13. The analyst observed that the company data reflects that there has been a significant decline in the sale of appliances.

8. Coinbase Global, Inc. (NASDAQ:COIN)

Number of Hedge Fund Holders: 28

Coinbase Global, Inc. (NASDAQ:COIN) is an operator of cryptocurrency exchanges that have been severely impacted by rising inflation.

The price of the two notable cryptocurrencies in the form of Bitcoin and Ethereum have lost nearly 60% of their value YTD. The sharp decline has led investors to bear heavy losses and liquidate their positions in the cryptocurrency universe. The sentiments of cryptocurrency investors are expected to remain depressed next year and in 2024 as well.

Based on these developments, Dan Dolev at Mizuho downgraded Coinbase Global, Inc. (NASDAQ:COIN) stock from a Neutral to an Underperform rating on December 9. The analyst also reduced the target price by more than 28% from $42 to $30. The reduced target price is 25% lower than the last closing price of December 13. The significant downward revision in target price has been due to Coinbase Global, Inc. (NASDAQ:COIN) slashing the revenue and EBITDA forecast for 2024 by 18% and 64%, respectively.

Here’s what Hayden Capital said about Coinbase Global, Inc. (NASDAQ:COIN) in its Q2 2022 investor letter:

“Coinbase (NASDAQ:COIN): The crypto ecosystem moves extremely quickly, and there’s been many new developments since we first invested in Coinbase, a year ago. Most notably, crypto market cap has declined from a peak of ~$3 Trillion last fall, to ~$1.1 Trillion today (a -63% decline, and -72% peak-to-trough; LINK). Crypto is a volatile asset class, and has experienced many draw-downs of similar magnitude in the past. For example, Bitcoin was down -93% during 2011, -85% from 2013-15, and -84% from 2017-18. In this context, the latest draw-down is a pretty normal outcome for this emerging asset class.

A large reason for this volatility, is simply because there aren’t any major “real-world use cases” for the asset just yet. In our letter outlining the investment last year, we wrote that crypto is still “in the middle of ‘crossing the chasm’ into mainstream adoption & use cases, which will result in millions of mainstream users needing to transact crypto in some form”…” (Click here to see the full text)

7. MetLife, Inc. (NYSE:MET)

Number of Hedge Fund Holders: 36

MetLife, Inc. (NYSE:MET) is a New York-based provider of annuities, employee benefit programs, and insurance services. The company, founded in 1868, has a presence in over 60 countries with 90 million customers and has the distinction of being one of the biggest players in its industry.

The rising inflation rate has triggered a domino effect for MetLife, Inc. (NYSE:MET) as it has caused the benchmark interest rates to increase, leading to credit and capital concerns for the corporation. Furthermore, the possibility of higher claims related to the COVID-19 pandemic caused Suneet Kamath at Jefferies to downgrade MetLife, Inc. (NYSE:MET) stock from a Buy to a Hold rating on December 9. The analyst also lowered the price target from $86 to $82. Kamath anticipates a challenging 2023 for the multiline insurance provider due to weakness in the overall economy.

Pzena Investment Management reduced its stake in MetLife, Inc. (NYSE:MET) by 6% during Q3 2022.

6. Tractor Supply Company (NASDAQ:TSCO)

Number of Hedge Fund Holders: 37

Tractor Supply Company (NASDAQ:TSCO) is a Brentwood, Tennessee-based rural lifestyle retail chain store operator that sells a broad range of products to fulfill the needs of ranchers and recreational farmers. The company sells a variety of products through its 2,027 stores established across 49 states in the US. Furthermore, the company also operates a mobile application and an e-commerce website.

Tractor Supply Company (NASDAQ:TSCO) has been observing escalating supply-chain and inflationary concerns. The gross margin of the company has been impacted by rising transportation costs. In the third quarter, Tractor Supply Company’s (NASDAQ:TSCO) gross margin decreased by 32 basis points (bps), reaching 35.6%. Furthermore, selling, general, and administrative expenses (SG&A) observed an increase of 9% compared to the same period last year. While inflation is now slowing down, the company expects the rising costs for the raw materials that go into making its product categories and underlying factors like higher labor expenses and transportation costs to weigh upon its margins during the next year as well.

During Q3 2022, D E Shaw lowered its stake in Tractor Supply Company (NASDAQ:TSCO) by 11%.

In addition to Tractor Supply Company (NASDAQ:TSCO), companies like Tesla, Inc. (NASDAQ:TSLA), PepsiCo, Inc. (NASDAQ:PEP), and The Procter & Gamble Company (NYSE:PG) are also among the stocks affected the most by inflation.

5. Pool Corporation (NASDAQ:POOL)

Number of Hedge Fund Holders: 42

Pool Corporation (NASDAQ:POOL) is a Louisiana-based distributor of equipment and supplies for swimming pools along with other leisure products. The company has the distinction of distributing over 200,000 national brand and private label products belonging to over 2,200 vendors to nearly 120,000 wholesale customers as of 2022. This makes the company the biggest distributor of swimming pool-related wholesale products in the world, as it primarily caters to the needs of residential customers.

Pool Corporation (NASDAQ:POOL) was one of the beneficiaries of the COVID-19 pandemic, as lockdowns and restrictions limited the movement of people and caused them to shift their focus to recreational activities like swimming. However, the uncertainty in the macroeconomic environment due to rising inflation rates has led to a sharp decline in the discretionary spending of customers, adversely impacting the demand for Pool Corporation’s (NASDAQ:POOL) products. Furthermore, employees are now getting called back to full-time work, which is also not playing in Pool Corporation’s (NASDAQ:POOL) favor. The management anticipates Q4 2022 gross margin to decline by 1.5%-2% in comparison to the last year and has also lowered the full-year earnings guidance.

Here’s what RiverPark Funds said about Pool Corporation (NASDAQ:POOL)  in its Q2 2022 investor letter:

 “Those of you who own a backyard pool already know the Pool Corp. story quite well. (Honey, why is the pool water green?) Those who don’t own a pool, well, we recommend a little rent-seeking on your neighbor’s pool by owning these shares. The Pool Corp. strategy is beautifully simple; build a pool and become its customer for life. Once the major discretionary expenditure of building a pool is made, that high-maintenance asset becomes an annual annuity for your local pool service company. Increasingly, that local pool service company could well be owned by Pool Corp.

Those who own older pools know quite well that pool maintenance is much more involved (read: expensive) than just annual chemicals in the early years. Once a pool reaches its early teen years (often sooner), maintenance reaches a very different level of (read: expensive) when every part of the pool’s filtration system wears out. As the years progress, then pool/backyard rebuild kicks off. Well, that original pool becomes a brand-new second pool. Rinse and repeat. Your local pool service company is assuredly not the lonely Maytag repairman…” (Click here to see the full text)

4. The Boeing Company (NYSE:BA)

Number of Hedge Fund Holders: 42

The Boeing Company (NYSE:BA) is an Arlington, Virginia-based aerospace and defense company that is known for manufacturing commercial airplanes.

Inflation and supply chain-related challenges caused the aerospace giant to report a loss of $3.3 billion during Q3 2022. The Boeing Company (NYSE:BA) noted that it observed the heaviest impact on its financial statements from defense plane contracts. These are government contracts based on fixed price points which caused the company to take a financial hit in completing them during an inflationary environment. The inability to pass on the price increases did not play in favor of The Boeing Company (NYSE:BA).

Furthermore, the company lost hundreds of experienced engineers from its workforce as employees decided to take early retirements in 2022. This was done to cash out pensions as employees feared that an increase in inflation could cause a big cut in their pension payouts if they delayed the decision to retire.

Here’s what Meridian Funds said about The Boeing Company (NYSE:BA) in its Q3 2022 investor letter:

“We similarly remained invested in largely out-of-favor The Boeing Company (NYSE:BA) , a global leader in developing and producing commercial jet aircraft. Due to some self-inflicted wounds and a bit of bad luck, as well as dramatic declines in air travel early in the pandemic, investor sentiment for this company has simply been awful. As part of our contrarian thinking, however, we view the business as critical to global transportation needs and see multiple catalysts to improve sentiment. In addition to the current surge in air travel worldwide, ramped up production of the 737 MAX aircraft and the pending restart of 787 Dreamliner deliveries should help turn broader sentiment. Additionally, we anticipate a meaningful inflection in cash flow as Boeing starts delivering aircraft currently in storage as well as the eventual expansion of its production in both core platforms.”

3. The Procter & Gamble Company (NYSE:PG)

Number of Hedge Fund Holders: 69

The Procter & Gamble Company (NYSE:PG) is a Cincinnati, Ohio-based manufacturer and marketer of fast-moving consumer goods (FMCG).

For the fiscal year 2023, The Procter & Gamble Company (NYSE:PG) is predicted to experience about $3.9 billion in headwinds, or a 27% reduction in EPS growth, as a result of rampant inflation affecting consumer finances, geopolitical problems, and exchange rate fluctuations. The Procter & Gamble Company (NYSE:PG) was anticipating a net headwind of $2.3 billion, or a 16% reduction in EPS growth, compared to the comparable projection provided in Q3 2022. However, the forecasted headwind for 2023 has risen by 69%. The rising inflation rates have also led many customers to switch to other brands. According to the latest survey conducted by Chicago, Illinois-based management consultancy firm Kearney only 22% of the customers are loyal to their favorite brands.

As of Q3 2022, The Procter & Gamble Company (NYSE:PG) was held by 69 hedge funds.

2. PepsiCo, Inc. (NASDAQ:PEP)

Number of Hedge Fund Holders: 72

PepsiCo, Inc. (NASDAQ:PEP) is a Harrison, New York-based manufacturer, distributor, and marketer of beverages and snacks.

Due to rising inflation, PepsiCo, Inc. (NASDAQ:PEP) has been forced to cut down hundreds of jobs to improve efficiency and lower costs. The snack segment of the business has initiated a voluntary retirement program in the states of Illinois and Texas. Although the sales of snack divisions increased by 16% YoY during Q3 2022, the growth was driven due to a 17% rise in prices. This reflects that unit sales observed a YoY decline. PepsiCo, Inc. (NASDAQ:PEP) has been able to increase prices and pass on the impact of inflation to consumers due to its strong brand image.

PepsiCo, Inc. (NASDAQ:PEP) was held by 72 hedge funds at the end of the third quarter of the year.

1. Tesla, Inc. (NASDAQ:TSLA)

Number of Hedge Fund Holders: 88

Tesla, Inc. (NASDAQ:TSLA) is a Texas-based manufacturer of electric vehicles helmed by the billionaire Elon Musk.

Earlier this year, CEO Elon Musk accepted that Tesla, Inc. (NASDAQ:TSLA) is bearing a significant impact of inflation in the form of higher raw materials costs and logistical expenses. Tesla, Inc. (NASDAQ:TSLA) reported that vehicle sales in November 2022 declined by 9.5% YoY compared to 2021. This is the first time since 2008 that the company’s vehicle sales declined for two consecutive months on a month-over-month (MoM) basis. Historically, October and November have been considered the strongest months for automobile sales. Tesla, Inc. (NASDAQ:TSLA) might have to bear the pain on multiple fronts as experts believe that the company could be forced to take further price cuts to address its low demand problem. During the inflationary period, Tesla, Inc. (NASDAQ:TSLA) has been forced to cut its prices in China and the US along with production cuts in China due to rising costs.

Here’s what Baron Funds said about Tesla, Inc. (NASDAQ:TSLA) in its Q3 2022 investor letter:

“Tesla, Inc. (NASDAQ:TSLA) makes fully electric vehicles (EVs), related software offerings, solar and energy storage products, and battery cells. After a tough second quarter that included a prolonged shutdown of one of Tesla’s key manufacturing facilities in Shanghai, the company demonstrated a significant 40% sequential increase in production volumes resulting in another quarterly record of production and deliveries. Despite the second quarter complexities, inflationary pressures, and production ramp-up of two new facilities (Berlin and Austin), the company exceeded Wall Street expectations in the second quarter. It maintained healthy 26% normalized gross margins, achieved industry-leading 18% adjusted operating income margins, and has generated over $14 billion of cash from operations over the past year. Moreover, due to Tesla’s high level of vertical integration and U.S. manufacturing capacity, the company is expected to be one of the key beneficiaries of the Inflation Reduction Act, qualifying for significant manufacturing and consumer-related incentives. We believe these incentives can add up to tens of billions of dollars over the coming decade, while also enhancing Tesla’s competitive advantage versus other automakers. The company also held its second artificial intelligence day, which presented continued advancements in its vehicle self-driving program and showcased its rapidly evolving humanoid robot developments (check out the Optimus videos on YouTube). We continue to believe Tesla is well positioned to benefit from complementary tectonic shifts in the automotive industry, including electrification, autonomous driving, and shared mobility. And, yes, Tesla is still effectively debt free, with over $18 billion of cash on its balance sheet, and investors are even speculating about a stock buyback, a far cry from worries of bankruptcy just a few years ago.”

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Disclosure: None. 10 Stocks Most Affected by Inflation is originally published on Insider Monkey.