Analysts at Credit Suisse have named a raft of U.S. and European stocks with pricing power to help investors navigate a world of rising inflation. Inflation has been on a tear this year. The U.S. consumer price index rose 6.2% in October from a year ago — the fastest pace in 30 years, while euro zone inflation recently hit a 13-year high. While this inflationary environment is likely to put pressure on corporate margins, investors can position themselves by owning stocks with pricing power, Credit Suisse analysts led by Michel Lerner said on Nov. 3. These stocks have resilient cash flow and supportive valuations, they added. Such a strategy has paid off in previous inflationary cycles. Lerner noted that nearly a quarter of large cap U.S. stocks bucked the trend and delivered higher operating margins during the inflationary period of the late 1970s and early 1980s. "[Today] the shift in industry composition among listed companies towards higher margin activities, especially in the U.S., would suggest an even deeper pool of companies with pricing power," he added. High margins Credit Suisse screened for major U.S and European stocks with consistent operating margins of above 50% over the last five years, along with a so-called economic moat. The term economic moat — coined by legendary investor Warren Buffett — refers to a distinct competitive advantage which enables a company to preserve its profitability and market share from its competitors. Technology and healthcare stocks feature prominently on Credits Suisse's list of stocks with high margins. U.S. names on the list include technology giant Oracle , payments titans Mastercard and Visa and chip manufacturers KLA-Tencor and Intel . Financial services firms CME Group and MSCI , as well as biopharmaceutical companies Amgen and Pfizer , also make the screen. In Europe, U.K. financial services firm Hargreaves Lansdown , Danish pharmaceutical firm Novo Nordisk and German exchange operator Deutsche Boerse are on the list, along with Swiss banking software company Temenos and Swiss healthcare company Roche . R & D spend In addition, the Credit Suisse analysts found that companies which invest significantly in research and development consistently report higher operating margins than those with lower spending. Its screen of companies with significant R & D spending and high operating margins includes AT & T , Spanish telecommunications company Telefonica and industrial giant 3M . Other stocks on the list include eBay , Meta (parent of Facebook), fitness gadgets retailer Garmin , gaming companies Activision Blizzard and Ubisoft Entertainment . Concentrated industries Companies operating in industries with a high concentration of a small number of stocks and fewer competitors are also likely to have higher pricing, the analysts said. "Local U.S. and European listed markets are getting less, not more competitive, thus providing a better environment for mega caps in some industries to dictate pricing," they added. On its list called "attractive mega caps in concentrated industries," Credit Suisse named shipping companies Hapag-Lloyd and AP Moeller , industrial conglomerate Danaher and auto makers Daimler and Stellantis . Computer software company Dell Technologies , semiconductor firms Advanced Micro Devices and Lam Research also made the screen, as did French cosmetics retailer L'Oreal , Norwegian energy firm Equinor , German pharmaceutical equipment supplier Sartorius Stedim and French oil major Total Energies . Three stocks appear on all three of Credit Suisse's screens: Alphabet , gaming company Electronic Arts and semiconductor firm Broadcom .
The logo of Alphabet Inc's Google outside the company's office in Beijing, China, August 8, 2018.
Thomas Peter | Reuters
Analysts at Credit Suisse have named a raft of U.S. and European stocks with pricing power to help investors navigate a world of rising inflation.