Buy Companies That Sell Inelastic Goods

In finance, there’s a concept called elasticity. It shows that some goods won’t see a big drop in demand, even if there’s a big change in price. This can be seen with energy prices, as people have to heat their home and drive to and from work.

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  • It’s also plain to see in the food space, as people have to eat. Companies that cater to these demands tend to be steadily profitable, or even improve amid inflation.

    One such example is Kellogg (K). The maker of cereals and other shelf-stable foods has been able to raise prices on consumers to beat inflation. And they’re also seeing organic net sales rise 10 percent, higher than previously forecast.

    That may help explain why shares are up 20 percent over the past year – the mirror image of the S&P 500 index.

    Action to take: Shares still have more room to run, especially as the stock tanked after its solid earnings report last Thursday. Kellogg has been a solid dividend payer and grower, with a starting yield now at 3.1 percent.

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  • For traders, shares are likely to rebound from their earnings drop. The March 2023 $75 calls, last going for about $1.85, offer investors a high double-digit return potential in the coming months. In today’s volatile markets, however, it may make more sense to target a shorter and lower profit window.


    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.