It’s become clear that last year’s rise in inflation hasn’t moderated yet. It may continue for some time. That can impact the economy in a number of ways. For investors, the biggest is how a company’s expenses can rise and profit margins can fall.
In this environment, companies that can increase their prices to cover higher input costs can maintain their profit margins and fare well here. That may mean falling less than other stocks, or even seeing shares move higher in a bear market like today’s.
PepsiCo (PEP) is one such company. Shares are up 3 percent in the past year, which looks even better next to the S&P 500’s 18 percent drop in the same timeframe.
More importantly, the company has continued to beat on earnings as it’s been able to raise prices for their soda and snack foods at a faster rate than inflation. That suggests further outperformance ahead.
Action to take: Shares are going for about 23 times forward earnings, which is a bit on the low end for shares in the past few years. Investors who buy shares now likely won’t be disappointed in time. Plus, the stock is a dividend growth play with a starting yield today of 2.8 percent.
For traders, the January 2023 $180 calls, last going for about $3.75, offer mid-double-digit upside on a move higher in shares in the coming 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.