The global economic recovery has been a boon to businesses and stocks. But underneath these gains hides a potential spoiler, inflation. The reopening of the economy, combined with labor shortages and pent-up consumer demand, driven by government stimulus, has led to product shortages and supply chain obstacles. This resulted in higher product prices and inflation.
The Consumer Price Index (CPI), which measures the increase in the price of goods over a period of time, rose more than five percent in the twelve months ending in September. Making matters worse, in a recent speech, Fed Chair Jerome Powell said that the global supply chain crisis could remain through 2022. Plus, inflation not only harms corporate margins but eats into investor returns as well.
However, some companies can generate higher profits when prices rise. That’s why investors should consider companies with higher pricing power. This means they can raise prices faster and pass the costs onto consumers. These stocks can be found in sectors and industries such as energy, chemicals, and consumer staple. EOG Resources, Inc. (EOG), Olin Corporation (OLN), and Coca-Cola Company (KO) are three such stocks worth a look.
EOG Resources, Inc. (EOG)
EOG is involved in exploring and producing oil and natural gas. The firm’s operations are spread across the United States, China, and Trinidad. To evaluate wells in and gas plays, the firm calculates the rate of return based on the profitability of wells to produce optimum oil and gas volumes while minimizing costs.
In the U.S, the company operates in prolific resources with massive reserves of oil and natural gas. These reserve bases are expected to boost the EOG’s oil and natural gas production over several years. The firm has significant acreages in oil shale plays such as Permian, Bakken, and Eagle Ford. EOG has roughly 11,500 net undrilled premium locations, with 6,300 in the Delaware Basin alone.
The company employs technologies like horizontal drilling and advanced completion techniques to maximize its production from these wells. EOG is one of the most technically proficient operators in the industry. Its initial production rates from its shale wells consistently exceed the industry averages. In addition to strong positions in crucial liquids-rich plays, its Dorado discovery adds additional natural gas revenue.
EOG has an overall grade of B, which translates into a Buy rating in our POWR Ratings system. The company has a Growth Grade of B as its EBITDA grew 81.9% over the past year. Analysts expect earnings to rise 452.7% for the year. EOG also has a Quality Grade of B due to solid fundamentals. As of the most recent quarter, the company had $3.9 billion in cash compared to only $39 million in short-term debt.
We also provide Value, Momentum, Stability, and Sentiment grades for EOG, which you can find here. EOG is ranked #11 in the Energy – Oil & Gas industry. For more top-ranked stocks in this industry, click here.
Olin Corporation (OLN)
OLN manufactures and sells a variety of chemicals and chemical-based products. The company sells products through three segments. Its Chlor alkali products and Vinyls segment, which generates the majority of revenue, sells chlorine and caustic soda, used in various industries, including cosmetics, textiles, crop protection, and fire protection products. Its epoxy segment sells epoxy resins used in paints and coatings.
Its Winchester segment sells sporting ammunition and ammunition accessories under the Winchester brand. The company is benefiting from its strategic investment in its IT project. OLN started the project in 2017 to implement a new enterprise resource planning, engineering, and manufacturing systems. These are used across its heritage business and Dow Chlorine Products businesses.
The project maximizes cost-effectiveness and efficiency by standardizing business processes. The project was completed last year and is expected to provide roughly $50 million annual cost savings. OLN is also benefiting from a multi-year contract to operate the government-owned Lake City ammunition facility. This is a massive growth driver for the company as it is expected to increase the Winchester segment’s annual revenue by $450-$550 million.
OLN has an overall grade of A and a Strong Buy rating in our POWR Ratings system. The company has a Growth Grade of B, which isn’t surprising as sales and earnings are forecasted to rise 51.9% and 827% for the year. OLN also has a Value Grade of B due to low valuation metrics. For instance, it has a trailing P/E of 9.61 and a forward P/E of 8.
For the rest of OLN’s grades (Momentum, Stability, Sentiment, and Quality), click here. OLN is ranked #7 in the B-rated Chemicals industry. For more top stocks in this highly rated industry, make sure to visit this link.
Note that OLN is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Growth portfolio. Learn more here.
Coca-Cola Company (KO)
KO is the largest non-alcoholic beverage entity globally, owning and marketing some of the leading carbonated beverage brands, such as Coke, Fanta, Sprite, and non-sparkling brands, including Minute Maid, Georgia Coffee, Costa, and Glaceau. The company has a market share of more than 40% in the non-alcoholic beverage industry.
KO is evolving its business model to become a total beverage company due to the industry-wide flattening of soda sales. It has investments in healthier alternatives such as coffee, sparkling water, and sports drinks. This includes Coca-Cola Energy, Coca-Cola Plus Coffee, Powerade Ultra, and Powerade Power Water.
KO is gaining from an improved price mix, an increase in concentrate sales, and higher unit case volume. This led to a solid second quarter, and management raised guidance for the year. As the economy reopened, the company saw increased consumer mobility and an increase in away-from-home channel sales. However, the company should still gain from its investments to expand its digital presence.
The company has an overall grade of B, translating into a Buy rating in our POWR Ratings system. KO has a Stability Grade of B as earnings and price performance have been consistent. For example, the stock has a low beta of 0.63. The company also has a Quality Grade of B, which makes sense with a current ratio of 1.5, indicating it has more than enough liquidity to handle short-term obligations.
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This article was written by David Cohne, Chief Value Strategist for StockNews.com. David has helped investors find the most profitable stocks for over 20 years.
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EOG shares were trading at $94.07 per share on Friday morning, up $0.26 (+0.28%). Year-to-date, EOG has gained 95.20%, versus a 23.54% rise in the benchmark S&P 500 index during the same period.
About the Author: David Cohne
David Cohne has 20 years of experience as an investment analyst and writer. He is the Chief Value Strategist for StockNews.com and the editor of POWR Value newsletter. Prior to StockNews, David spent eleven years as a consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers.3 Inflation-Resistant Stocks to Buy for November appeared first on StockNews.com