Pricing power helps companies fight inflation

Companies with pricing power can protect their profit margins by passing those costs along to customers.
Capital Group

Capital Group

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Inflation is so unsettling to investors because it can erode company profits and, ultimately, investor returns. But there are ways to fight it: Companies with pricing power can protect their profit margins by passing those costs along to customers.

“I’m not ready to believe we are headed into a period of sustained inflation,” “But I do believe rising costs will linger in the months ahead, making it the biggest risk investors face in 2022. That’s why I am so focused on uncovering companies with pricing power.”

Diana Wagner, Equity Portfolio Manager Capital Group

Take Netflix. A string of hits like “Squid Game” and seemingly insatiable viewer demand have enabled the streaming giant to raise subscription fees four times over the past 10 years.

High and stable margins can be an indication of pricing power. Companies with pricing power potential include businesses that provide essential services, like health care giants Pfizer and UnitedHealth Group; consumer businesses with strong brand recognition, like beverage maker Coca-Cola; companies in industries with favourable supply and demand dynamics, like semiconductor and chip equipment makers TSMC and ASML; and businesses serving customers who are relatively insensitive to changes in price, like luxury goods companies LVMH and Kering.

Source: Capital Group

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Pricing power helps companies fight inflation