Signage for the Salesforce West office building in San Francisco, California, U.S., on Tuesday, Feb. 23, 2021.Inflation is expected to increase throughout the summer as the economy continues to rebound while still experiencing supply constraints.
But that looks to be a temporary phenomenon that'll put demand-driven stocks with higher pricing power at an advantage, according to a Wednesday report by UBS. Stocks with strong pricing power, or the effect that a change in product pricing has on demand for that product, tend to outperform during high inflation periods. UBS screened several large cap companies – as they tend to beat small cap companies in inflationary periods – with the highest pricing power and margin momentum relative to their sector.
"A number of factors make the strong vs weak pricing power trade attractive now," the report said. "It's working across most sectors, it's relatively cheap, has better pricing trends and much lower margin expectations for Q2."
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