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Monday, October 18, 2021

Pricing Power: The Inflation Combat

By Century Financial in 'Investment Insights'

Pricing Power: The Inflation Combat
Pricing Power: The Inflation Combat

* Trading in financial market carries risk and can result in loss of capital.

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Stocks with strong pricing power have recently lagged but appear attractive if stagflationary concerns continue to build. The strongest pricing power may be able to maintain profits despite slowing revenue growth and rising input costs if inflation remains high and economic growth weakens.

While economic uncertainty still dawns Wall Street with contradictory CPI and NFP data numbers, it is possible that if US Fed Chairman Powell sticks to hymn the chant of inflation being transitory, the equity markets may continue to climb higher. The upcoming Q3 earnings are anticipated to be dynamic and may be the driving force to dictate the direction of markets.

The supply chain crunch along with the global energy crises, and investors watching treasury yield movements like hawks, the companies that hold a better chance of price appreciation than others are the price makers.

Name CMP Dividend Yield 52 Week High 52 Week Low Analyst Target Price Estimated Return Buy Sell Hold Market Cap ($ Billion) Est Rev Growth GICS Industry Name
NIKE Inc 158 0.70 174.38 118.8 177.80 12.52% 26 2 4 250.10 6.28% Textiles, Apparel & Luxury Goods
Apple Inc 145 0.61 157.26 107.32 166.75 15.13% 36 2 9 2394.23 33.50% Technology Hardware & Storage
Philip Morris International 98.4 5.08 106.51 68.93 111.63 13.47% 13 0 6 153.31 8.71% Tobacco
Adobe Inc 610 N/A 673.88 420.78 709.96 16.37% 23 0 6 290.28 22.50% Software
Coca-Cola 54.5 3.08 57.56 47.3 62.05 13.90% 19 0 9 235.17 14.90% Beverages
Costco 452 0.70 470.49 307 484.06 7.00% 24 2 10 199.88 7.97% Food & Staples Retailing
Enphase Energy 173 N/A 229.04 92.14 195.63 13.13% 19 1 9 23.28 72.28% Semiconductors
Netflix Inc 628 N/A 646.84 463.41 643.38 2.40% 34 5 8 278.08 18.71% Entertainment

Source: Bloomberg
Date: 18th Oct 2021
Note: The above recommendations and forecasts are as per Bloomberg

Risks and Assumptions for Back-tested trading strategies
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The risks and assumptions listed here are not intended to be an exhaustive summary of all the risks and assumptions involved.
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The strategy might suffer from look-ahead bias which occurs due to the use of information or data in a study or simulation that would not have been known or available during the period being analyzed. This can lead to inaccurate results in the study or simulation.
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Future price movements may not be exactly the same as the historical price movements and this could lead to variation in performance.
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Testing can sometimes lead to over-optimization. This is a condition where performance results are tuned so high to the past they are no longer as accurate in the future.
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The model assumes no slippages in trading. Slippage refers to the difference between the expected price of a trade and the price at which the trade is actually executed.
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Drawdowns in actual trading can be higher than the tested system and losses could be significant in the event of leverage.
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Unforeseen events can lead to variation in performance from the tested trading strategy.
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The tested result has been computed with price feeds available from Bloomberg.
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The testing environment has not considered transaction or any other costs.
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Trading indicators used for the purpose of testing has been provided by Bloomberg.
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The strategy might suffer from data mining fallacy, selection bias and backfill bias.

Data Source: Bloomberg
Data as of: 18/10/2021

Arun Leslie John
Chief Market Analyst

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