A company can either pass on inflation to its customers, or it can’t. If a company offers a product or services with inelastic demand, chances are that company won’t feel the worst of the multi-decade-high inflation rates right now.
Companies can pass on inflation through a variety of ways. One is shrinkflation, where it simply lowers its content size and keeps the price the same. Or a company may benefit from higher prices because they simply collect a percentage of assets moving through their network.
That’s the case with credit card companies. These networks have been posting solid growth, as inflation means more spending in dollar terms on credit cards, even if the total number of goods being spent might not have risen.
One leader in the space is American Express (AXP). The company beat on earnings for the first quarter of the year, and affirmed its guidance.
Revenues are up 29 percent over the past year, and the company earned $2.73 against expectations of $2.40 per share. The stock is up about 20 percent in the past year, although shares are down about 10 percent from their all-time highs.
Action to take: Shares look attractive here at 18 times earnings. The company is one of just a few players in an oligopoly space, so should continue to fare well even in tough economic conditions. Plus, shares yield just over 1.1 percent here, thanks to a recently-raised dividend.
For traders, the July $200 calls, last going for about $3.90, offer mid-to-high double-digit upside in the next few months.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.