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Henrik Jonsson / Dreamstime.com
Americans pay higher prices for almost everything, which could be bad news for many businesses.
The producer price index, which measures the costs that domestic producers pay for goods and services, rose 9.6% year-on-year, according to the last reading in November. The Consumer Price Index, which tracks the prices buyers pay for products, rose 6.8% over the same period.
This meant that many producers were forced to absorb the rising input costs on their own, which likely led to lower incomes and tighter profit margins.
Some companies are likely to perform better in an inflationary environment. Firms with a competitive advantage and strong pricing power, for example, can pass higher costs on to customers by increasing prices. Others might be less affected by rising costs of labor and materials due to the type of products and services they sell.
Barron looked for the
S&P 500
companies that managed to increase their profit margins – both net and gross – in the last published fiscal quarter, compared to the same periods in 2020 and 2019. The 2019 comparison has been included to ensure that the margin more high is not the result of abnormally bad numbers due to the Covid-19 pandemic in 2020. Companies with negative income in any of the three years were excluded from the list.
Among the group of nearly 100 stocks that have widened their margins, 11 are currently trading more than 20% below their 52-week highs on Friday. This is a sign that these names may have fallen back enough and are poised for a rebound, given their healthy growth in profitability.
One of the actions in the list,
Under protection
(ticker: UAA), offers a good example. In the quarter that ended in September 2021, the sportswear retailer increased net sales by 8% from the previous year to $ 1.5 billion.
However, Under Armor’s net income jumped to $ 113 million from $ 39 million last year. This means that the company has been able to significantly strengthen its profitability despite similar levels of consumer activity and income. As a result, Under Armor’s net margin increased from 2.7% to 7.3% and its gross margin increased from 48% to 51%. In particular, even compared to 2019, the margins improved slightly, despite the inflationary pressure linked to the pandemic.
| Company / Teletypewriter | Sector | Net margin for the 3rd quarter of 2021 | Q3 2020 net margin | Q3 2019 net margin | Current price / 52W high | Price / Earnings |
|---|---|---|---|---|---|---|
| Communication Charter / CHTR | Telecom | 9.3 | 6.8 | 3.4 | 77% | 28.2 |
| DISH / DISH Network | Telecom | 12.5 | 11.1 | 11.2 | 70 | 8.6 |
| Leidos / LDOS | Industrial | 5.9 | 5.0 | 5.7 | 80 | 13.7 |
| Lumen Technologies / LUMN | Telecom | 11.1 | 7.1 | 5.6 | 78 | 6.7 |
| Mohawk / MHK Industries | Materials | 9.6 | 8.0 | 6.2 | 78 | 12.2 |
| Netflix / NFLX | Technology | 19.4 | 12.3 | 12.7 | 79 | 51.6 |
| PTC / PTC | Technology | 60.9 | 13.7 | 2.9 | 76% | 27.2 |
| Qorvo / QRVO | Technology | 25.4 | 12.9 | 10.3 | 79 | 13.3 |
| AT&T / T | Telecom | 14.8 | 6.7 | 8.3 | 77 | 7.7 |
| Under Armor / SAU | Cyclical consumption | 7.3 | 2.7 | 7.2 | 76 | 27.4 |
| Viatris / VTRS | Health care | 6.9 | 6.2 | 6.4 | 77 | 3.9 |
Source: FactSet
The other companies on the list tend to be less affected by rising input costs to Start with. Indeed, their products or services are mainly based on existing infrastructures, intellectual properties or platforms.
Examples include telecommunications giants
AT&T
(T),
Communication of the Charter
(CHTR), and
Network of dishes
(PLATE). They are joined by a video streaming platform
Netflix
(NFLX) and software publisher
CTP
(PTC), as well as
Leidos
(LDOS),
Light technologies
(LUMN),
Mohawk Industries
(MHK),
Qorvo
(QRVO), and
Viatris
(VTRS).
Write to Evie Liu at [email protected]
