7 Stocks with the Pricing Power to Push Through High Inflation

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When inflation rises, it's not difficult to notice higher prices. But you don't have to be very old to understand the expression that a dollar doesn't buy as much as it used to. The Happy Meal was introduced in 1979 for a price of $1.10. Today, that same meal costs $2.99. Yet, it remains one of the restaurant chain's most popular items. It's also a barometer for the economy because of its convenience for parents.

And consider the iPhone which costs 81% more in 2022 than the initial model that launched in 2007. Yet despite the increase in price, consumers are willing to pay whatever is required.

The key to both of these examples, and others like them, is pricing power. A company that has the ability to raise its prices can maintain its profit margins. That means it delivers consistent results regardless of what's happening in the broader economy. In good times, this may be taken for granted. But when the economy slows down, that consistency stands out.

In this special presentation, we're looking at seven companies with significant pricing power at all times, particularly with inflation currently running at 40-year highs.

#1 - Advance Auto Parts (NYSE:AAP)

The first stock on our list is Advance Auto Parts (NYSE:AAP). The car parts company provides an essential service to its retail and commercial customers. Car maintenance is becoming increasingly more complicated. However, do-it-yourselfers still turn to the company for its products and services.

This was particularly evident as supply chains were disrupted due to the Covid-19 pandemic. With automakers unable to deliver new vehicles to dealerships, used car prices soared, as did the need for consumers to make their current cars run longer.

And on its earnings call in May 2022, CEO Tom Greco said the company’s commercial customers tend to base their purchase decisions on parts availability, customer service, speed, and reliability more than on price, allowing the customer to implement a strategic pricing plan to combat inflation.

The price per share of AAP stock is up 84.9% in the five years ending in July 2022. The company pays a dividend of $6.00 per share annually with an impressive dividend yield of over 3%.

About Advance Auto Parts

Advance Auto Parts, Inc provides automotive replacement parts, accessories, batteries, and maintenance items for domestic and imported cars, vans, sport utility vehicles, and light and heavy duty trucks. The company offers battery accessories; belts and hoses; brakes and brake pads; chassis and climate control parts; clutches and drive shafts; engines and engine parts; exhaust systems and parts; hub assemblies; ignition components and wires; radiators and cooling parts; starters and alternators; and steering and alignment parts. Read More

Current Price: $75.14
Consensus Rating: Reduce
Ratings Breakdown: 1 Buy Ratings, 16 Hold Ratings, 2 Sell Ratings.
Consensus Price Target: $64.56 (14.1% Downside)

#2 - PepsiCo (NASDAQ:PEP)

PepsiCo (NASDAQ:PEP) is about more than soft drinks. The company is a genuine snacking company home to many popular brands such as Lays, Doritos, Cheetos, and Gatorade. This gives the stock its defensive profile and gives the company its pricing power. It sounds like an oversimplification, but consumers will give up many things before the snacks they love.

In the five years since July 2017, investors have been rewarded with a 40% increase in share price. But the keywords for investors are total return. That’s because Pepsi is a dividend king and has increased its dividend in the last 51 years. As of July 2022, the company delivered an annual return of $4.60 per share, which calculates to a 2.69% dividend yield.

PepsiCo stock also has a low beta supported by a high percentage of institutional ownership. As of July 2022, over 71% of institutions held PEP stock in their portfolios.

About PepsiCo

PepsiCo, Inc engages in the manufacture, marketing, distribution, and sale of various beverages and convenient foods worldwide. The company operates through seven segments: Frito-Lay North America; Quaker Foods North America; PepsiCo Beverages North America; Latin America; Europe; Africa, Middle East and South Asia; and Asia Pacific, Australia and New Zealand and China Region. Read More

Current Price: $175.58
Consensus Rating: Moderate Buy
Ratings Breakdown: 6 Buy Ratings, 5 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: $187.42 (6.7% Upside)

#3 - Apple (NASDAQ:AAPL)

It seems like a yearly occurrence. Apple (NASDAQ:AAPL) launches a new iPhone, and analysts question whether this will be the year when consumer demand will abate. Yet every year, Apple manages to silence its critics. That theory was tested during the Covid-19 pandemic, and in both 2020 and 2021, the company managed to launch new products.

As a result, Apple’s revenue and earnings continue to rise. As pointed out in the introduction, the price of the company’s iconic iPhone has been up 81% since it was first launched. Yet demand remains as strong as ever. The company sees similar pricing power with other products in its portfolio, including its Apple Watch.

Apple was the first trillion-dollar company in 2018 and became the world’s first three trillion-dollar company in 2022. The company’s market cap has fallen back a little since that time. However, as the company continues to move into the area of services, its runway for growth will continue to expand as well.

About Apple

Apple Inc designs, manufactures, and markets smartphones, personal computers, tablets, wearables, and accessories worldwide. The company offers iPhone, a line of smartphones; Mac, a line of personal computers; iPad, a line of multi-purpose tablets; and wearables, home, and accessories comprising AirPods, Apple TV, Apple Watch, Beats products, and HomePod. Read More

Current Price: $169.30
Consensus Rating: Moderate Buy
Ratings Breakdown: 22 Buy Ratings, 12 Hold Ratings, 1 Sell Ratings.
Consensus Price Target: $203.05 (19.9% Upside)

#4 - Johnson & Johnson (NYSE:JNJ)

In January 2022, Johnson & Johnson (NYSE:JNJ) made a list of stocks to buy from Goldman Sachs (NYSE:GS). The sole criteria were to find stocks that had showcased pricing power over the last five years. This isn’t a surprise to investors in JNJ stock, who have been rewarded with a workmanlike 34% gain over that same span.

The company has a portfolio of products that are essential for many consumers. But many investors may be surprised at the expanse of the company’s portfolio, which includes pharmaceutical products as well as the medical technology (Medtech) sectors.

Johnson & Johnson is the second dividend king on this list. The company has increased its dividend every year for the last 61 years. As of July 2022, it has a dividend payout ratio of over 60%. That suggests that investors should have no cause for concern that the company will continue to increase its dividend over time.

About Johnson & Johnson

Johnson & Johnson, together with its subsidiaries, researches, develops, manufactures, and sells various products in the healthcare field worldwide. The company's Innovative Medicine segment offers products for various therapeutic areas, such as immunology, including rheumatoid arthritis, psoriatic arthritis, inflammatory bowel disease, and psoriasis; infectious diseases comprising HIV/AIDS; neuroscience, consisting of mood disorders, neurodegenerative disorders, and schizophrenia; oncology, such as prostate cancer, hematologic malignancies, lung cancer, and bladder cancer; cardiovascular and metabolism, including thrombosis, diabetes, and macular degeneration; and pulmonary hypertension comprising pulmonary arterial hypertension through retailers, wholesalers, distributors, hospitals, and healthcare professionals for prescription use. Read More

Current Price: $146.13
Consensus Rating: Hold
Ratings Breakdown: 6 Buy Ratings, 7 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: $175.86 (20.3% Upside)

#5 - Nike (NYSE:NKE)

Another company on the Goldman Sachs list of companies with exceptional pricing power is Nike (NYSE:NKE). Since bursting onto the national scene in the 1980s, the company has continued to deliver a value and experience to its customer base that sustains the company’s premium valuation.

That’s the power of having a brand that is recognizable in just three words. And the apparel company continues to expand its network of partnerships. Its latest being a multi-year deal with upcoming sportswear manufacturer, Fanatics. The deal will allow Fanatics to produce Nike-branded consumer gear for NCAA programs and increase Nike’s “speed to market.”

Investors have seen NKE stock increase in price by 80% in the last five years. And the company has a dividend that it has increased for 21 years and is supported by, among other things, free cash flow (FCF) which hit almost $6 billion in 2021. While there are better choices for companies strictly looking to capture a dividend, Nike is a solid choice for investors looking for a solid combination of both.

About NIKE

NIKE, Inc, together with its subsidiaries, designs, develops, markets, and sells athletic footwear, apparel, equipment, accessories, and services worldwide. The company provides athletic and casual footwear, apparel, and accessories under the Jumpman trademark; and casual sneakers, apparel, and accessories under the Converse, Chuck Taylor, All Star, One Star, Star Chevron, and Jack Purcell trademarks. Read More

Current Price: $94.11
Consensus Rating: Moderate Buy
Ratings Breakdown: 20 Buy Ratings, 9 Hold Ratings, 2 Sell Ratings.
Consensus Price Target: $116.26 (23.5% Upside)

#6 - Generac Holdings (NYSE:GNRC)

Generac Holdings (NYSE:GNRC) is the only company that makes this list that does not pay dividends. However, with a 496% growth in share price over the last five years, most investors will not quibble over the lack of a dividend. GNRC stock still carries that lofty gain even while it’s down over 50% from its all-time high in 2021.

Simply put, with more demand being placed on our nation’s power grid and increasing concern over the acceleration of natural disasters due to a changing climate, there is more demand than ever for the company’s line of sustainable clean energy products.

Generac has been growing its revenue and earnings at over 20% in the last five years. While analysts are not expecting the company to sustain that level of growth in the next five years, they are forecasting double-digit growth in both metrics over the next five years. All of this is to say that GNRC looks like an ideal choice for investors looking for stocks with purchasing power.

About Generac

Generac Holdings Inc designs, manufactures, and distributes various energy technology products and solution worldwide. The company offers residential automatic standby generators, automatic transfer switch, air-cooled engine residential standby generators, and liquid-cooled engine generators; Mobile Link, a remote monitoring system for home standby generators; residential storage solution, which consists of a system of batteries, an inverter, photovoltaic optimizers, power electronic controls, and other components; smart home solutions, such as smart thermostats and a suite of home monitoring products. Read More

Current Price: $140.10
Consensus Rating: Moderate Buy
Ratings Breakdown: 15 Buy Ratings, 7 Hold Ratings, 1 Sell Ratings.
Consensus Price Target: $141.65 (1.1% Upside)

#7 - Extra Space Storage (NYSE:EXR)

The last stock on our list is Extra Space Storage (NYSE:EXR). Extra Space is a self-storage REIT that is generally considered to be a recession-resistant stock. The fact is that many consumers will continue to pay to store their belonging which is where the pricing power comes from. Also, the company is projecting funds from operation (FFO) to increase by 18% this year. That’s up 510 basis points from its prior outlook.

Over the last five years, shares of EXR stock have increased in price by 121%. That’s exceptional growth for a REIT known more for paying out a significant percentage of its earnings as a dividend. Extra Space Storage has an annualized dividend payout of $6, which calculates to a dividend yield of 3.54%.

About Extra Space Storage

Extra Space Storage Inc, headquartered in Salt Lake City, Utah, is a self-administered and self-managed REIT and a member of the S&P 500. As of December 31, 2023, the Company owned and/or operated 3,714 self-storage stores in 42 states and Washington, DC The Company's stores comprise approximately 2.6 million units and approximately 283.0 million square feet of rentable space operating under the Extra Space, Life Storage and Storage Express brands. Read More

Current Price: $133.57
Consensus Rating: Hold
Ratings Breakdown: 5 Buy Ratings, 6 Hold Ratings, 1 Sell Ratings.
Consensus Price Target: $150.17 (12.4% Upside)

Once prices go up, they rarely go down. Everything from a gallon of gas to the price of your morning coffee costs more than it did just a few years ago. And that price was more than it was a few years before that. And in most cases, consumers have been willing to pay that price without giving it much thought. That's what pricing power means.

Every business owner knows that they have to raise prices at some point. And companies with pricing power can raise prices without reducing demand for their products.

The companies listed in this presentation have products that are either unique or essential in the eyes of their customers. And that means providing value relative to its competition. That leads to consistent revenue, stable if not growing profits, and a predictable growth rate.