Investment analysts from Los Angeles-based Capital Group provided investment options and portfolio suggestions on how to wade through the current inflation crisis and the threat of a recession.
The firm's presentation yesterday came the same day it was announced that the gross domestic product (GDP) recorded negative growth for the second quarter in a row, which has notched up fears that the U.S. economy is in a recession. In addition, inflation continues to remain high, raising concerns among investors and the Federal Reserve.
Capital Group hosted a webinar entitled “All-Weather Investing Amid the Storm,” during which analysts discussed investment options to handle a possible recession and ongoing inflation problems, which they do not see ending soon.
“I don’t subscribe to the theory that we are out of this inflation mess,” said Diana Wagner, equity portfolio manager at Capital Group. “I think the Fed will have to raise rates higher than we think they will.”
She said that when making investment decisions, investors should look to companies with pricing power. These are companies that can afford to raise their rates without negatively impacting the demand for their products.
Companies with pricing power include insurance brokers, the healthcare industry and tobacco companies, she said.
“Tobacco is the only consumer product where they raise prices on the same product with no innovation,” Wagner said. “The elasticity of demand for those products is pretty low.”
Other companies, such as beverage companies, are wise investment choices because, while consumers look to price down in a sluggish economy, many will not buy down to the generic or store-brand versions of soft drinks. Fast food restaurants are another option that consumers tend to frequent more as they look to reduce the costs of going out to eat, she said.
Ryan Brown, equity investment analyst at the Capital Group, said his investment options include companies that create a significant consumer surplus—companies that add more to the system than they take. He cited Costco as a good example, as it routinely undersells because it makes a majority of its revenues on membership fees.
Other investment choices include companies that make products with a high-stakes future, where failure is not an option, such as contraception. Finally, Brown said companies with highly engineered products also have pricing power.