These 11 Stocks Expanded Profit Margin—Despite Inflation Pressure

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Henrik Jonsson / Dreamstime.com

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Americans are paying higher prices for almost everything — which can be bad news for many companies.

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The producer price index, which measures the cost of goods and services paid by domestic producers, climbed 9.6% year-on-year, according to the latest November readings. Meanwhile, the Consumer Price Index, which tracks the prices buyers pay for products, rose 6.8% during the same period.

This meant that many producers were forced to absorb rising input costs on their own—which could have led to lower incomes and narrower profit margins.

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However, some companies are likely to outperform in an inflationary environment. Businesses with a competitive edge and strong pricing power, for example, can pass rising costs on to customers by raising prices. Other firms may be less affected by rising costs in labor and materials, thanks to the types of products and services they sell.

baron’s Looked at S&P 500 companies that managed to expand their profit margins — both net and gross — in the latest reported fiscal quarter compared to the same periods in 2020 and 2019. The 2019 comparison was included to ensure that higher margins aren’t a result of 2020’s unusually poor numbers due to the COVID-19 pandemic. Firms with negative earnings in any three years were excluded from the list.

Out of a group of nearly 100 stocks that have raised margins, 11 are currently trading down more than 20% from their 52-week highs on Friday. This is a sign that these names may have pulled back and are gearing up for a rebound given their healthy profitability growth.

One of the stocks on the list, Under Armor (UAA), offers a good example. During the quarter ended September 2021, the sports apparel retailer grew its net sales 8% from the year-ago period to $1.5 billion.

However, Under Armour’s net income rose to $113 million from last year’s $39 million. This means that despite similar levels of consumer activity and revenue, the company was able to significantly strengthen its profitability. Armor’s net margin has increased from 2.7% to 7.3% as a result, and its gross margin has increased from 48% to 51%. Notably, even compared to 2019, margins have improved slightly, despite the inflationary pressures related to the pandemic.

Other companies on the list are less affected by rising input costs start with. This is because their products or services mostly depend on the existing infrastructure, intellectual property or platform.

Examples include telecommunications giants AT&T (T), Charter Communications (CHTR), and Dish Network (DISH). They are joined by video-streaming platform Netflix (NFLX) and software company PTC (PTC), as well as Leidos (LDOS), Lumen Technologies (LUMN), Mohawk Industries (MHK), Corvo (QRVO), and Viatris (VTRS). ,

Write to Evie Liu at [email protected]

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