With inflation heating up, Bank of America highlighted certain companies with pricing power to protect profits. The September producer price index showed prices for final-demand wholesale goods increased 0.5% from the month prior. Year over year, the index rose 8.6% — a fresh record since the data series' inception in 2010. "Though margins expanded to record highs in 2Q, companies highlighted increasing difficulties passing through cost inflation. Since then, issues have worsened," Bank of America's Savita Subramanian said in a note. "In 3Q, we also saw a near-record number of profit warnings (third highest since 2011), mostly due to supply issues." Pricing power refers to a company's ability to raise prices without losing business. Companies with pricing power tend to weather inflationary periods better than competitors because they can pass on higher costs to customers. "The #1 screen request we receive is for companies with pricing power," Subramanian said. Bank of America screened for companies that have positive two-year sales and EBIT (earnings before interest and taxes) margin growth in the second, third and estimated fourth quarter. From that pool, the firm found the companies with a positive historical sensitivity to the consumer price index. The bank also identified the companies with a below-median labor intensity — the ratio of employees to sales — and higher expected market share projected in 2021 versus 2019. Take a look at five of their picks: Companies can have pricing power if they offer a unique value proposition, or sell goods or services that are necessities. Take Apple, for example, which appears on Bank of America's screen. The iPhone is a unique product that differentiates Apple from competitors. Streaming giant Netflix makes the bank's list as well. Analysts regularly praise Netflix for its industry-leading content, most recently the international phenom "Squid Game, " which became the platform's biggest series launch ever. "We see the continuation of some of the highly-viewed and highly-rated Netflix TV shows to likely drive subscriber growth," Bank of America's Nat Schindler. Other companies to make the bank's screen include oil company ConocoPhillips , food processing and commodities trading corporation Archer-Daniels-Midland , and chip maker Advanced Micro Devices . —CNBC's Michael Bloom contributed to this report.
The Netflix logo is seen on their office in Hollywood, California.
Lucy Nicholson | Reuters
With inflation heating up, Bank of America highlighted certain companies with pricing power to protect profits.