High Profit Margin Companies Will Win in Time

The current earnings season is showing which companies can fare well with high inflation right now, and which companies are struggling. While a company may report far different earnings than average right now, companies with high profit margins will likely continue to grow in time.

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  • That’s because these companies can either reinvest at a high rate of return, or give capital back to shareholders via dividends or share buybacks.

    One company faring well right now and posting a strong profit margin is Visa (V). The company reported solid earnings, thanks to a rebound in travel. The company posted a 19 percent rise in revenue.

    More importantly, the company’s high cash flows and low costs result in a 51 percent profit margin.

    Action to take: Shares are down 15 percent in the past year. But at current prices, shares go for 25 times forward earnings, their lowest valuation in years. The stock also yields 0.7 percent at today’s prices. And the company is one of just a handful of players in the credit card processor space.

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  • For traders, the January $240 calls, last going for about $8.20, offer mid-double-digit returns in the months ahead before expiration. Traders should continue to use the current market volatility to buy on down days and sell on any short-term rally.


    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.