Invest in Inflation-Beating Companies Until Price Increases Die Down

An inflationary environment, where prices continue to increase at higher-than-desired levels, can cause a lot of changes in consumer and investor behavior. However, some investments can fare well. One such type of company is one that won’t lose customers even if it can continue to deliver its product or service at a higher price.

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  • Companies that charge monthly are also in a great spot of being able to change prices more quickly compared to some companies that may go years without hiking prices.

    So it should be so surprise that shares of Netflix (NFLX) popped a bit last week when the company announced it was raising its monthly rates in the US and Canada, for the second time in just 15 months.

    The streaming giant has seen shares slide about 25 percent in recent weeks. If the company can keep its production and content delivery costs in line, it can largely bank the increased prices in the form of higher profit margins.

    Action to take: Buying an industry-leading company 25 percent off the top is a somewhat rare occurrence. While shares have been sliding lately, they’ll potentially soon return to a longer-term bull market. Even before the price increase, Netflix grew earnings at 83 percent in the past year, and has built its profit margin up to 17 percent, leaving more room for improvement.

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  • For traders, a longer-dated call like the June $600 call, last going for about $23.00, offers a leveraged return to a move higher in shares, provided it occurs in the first half of the year.

     

    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.