A trade war is becoming more certain and the effects of the Trump tax cut are wearing off. Which of your investments will retain their value and which will correct? Earnings have been the driver in this bull market. But, which stocks will continue to display strong earnings in a full-fledged trade war? Companies that dominate their market niche are typically able to raise prices without losing many customers. This is pricing power. Do your investments have pricing power?
CNBC writes about stocks to buy to ride out a trade war with China.
Goldman Sachs says there is still an investment strategy that can outperform even if the trade war with China gets worse.
The firm recommended companies with strong and sustainable profit margins.
These are their suggestions with current profit margins.
- Adobe, 89%
- Amgen, 86%
- Celgene, 96%
- Flowers Foods, 47%
- PVH, 56%
- Scotts Miracle-Gro, 35%
- VMWare, 88%
Adobe sold for $16.70 a share at its lowest in February of 2009 and sells for $272.86 today. It is a computer software company best known for the PDF (portable document format), Acrobat reader, Photoshop image editing software, Adobe Creative Suite, and Adobe Creative Cloud. Adobe’s products are top of the line and the first if not only choice for many users. This gives Adobe the pricing power to survive a trade war.
Amgen is a successful multinational biotechnology company. Their main focus is developing treatments and medicines using recombinant DNA technology. They have a strong product line and a robust R&D effort. Because they routinely create new medicines that have patents, they have impressive pricing power. Amgen sold for $42 a share in 2008 and sells for $207 a share today.
Celgene is another biotech company with a strong product line and robust R&D. They focus on medicines to combat cancer and inflammatory diseases. Like Amgen, they produce new medicines with patents when gives them pricing power. The stock sold for $19 a share in 2009 and $89 today. However, this stock is down from $131 a share a year ago.
VMWare is a computer software company that focuses on creating virtual versions of other platforms and services. It is a subsidiary of Dell Computers. Due to its unique software this company is dominant it niche, much like Adobe is. So, it has good pricing power. The stock sold for $19 a share in 2008 and $155 a share today.
Flowers Foods produces and markets packaged bakery goods in the USA. From a chain of 46 bakeries they deliver to stores throughout the nation. Their strength lies in a strong brand name, quality merchandise, and great execution. Their stock sold for $9.50 in 2009 and sells for $18 a share today. It briefly sold for $27 a share in 2015.
PVH is an American clothing company formerly known as Phillips-Van Heusen. Their strength lies in the brands that they own and the ones that they license.
- Van Heusen
- Tommy Hilfiger
- Calvin Klein
- True & Co.
- Geoffrey Beene
- BCBG Max Azria
- Sean John
- Kenneth Cole New York
- JOE Joseph Abboud
- Michael Kors
The stock sold for $16 a share in 2009 and sells for $139 a share today. Five months ago it sold for $160 a share.
This company is the industry leader in the home lawn and garden market. Its strong brand names are likely to keep selling even when prices go up. This sort of pricing power in its market niche makes Scotts Miracle-Gro a safe investment in the event of a protracted trade war. The stock sold for $19 a share in 2009 and sells for $79 a share today. Nine months ago it sold for $107 a share.
In the event of a prolonged trade war, niche industries, those that sell exclusively or primarily in the USA and companies whose raw materials come from the USA will have a better chance of avoiding serious losses. The bottom line will be the pricing power that the company has because of a strong brand name or control of its market sector.