The February readings of the Consumer Price Index (CPI) and the Producer Price Index (PPI) paused the rally in equities, and it forced investors to consider an uncomfortable reality. What if inflation begins to move higher and not lower? And if that happens, does it change the outlook for interest rate cuts in 2024?
However, if you’re a long-term investor, those questions shouldn’t concern you. If the market corrects, this is a time to, potentially, buy some quality stocks at a slightly better price. Plus, there is a group of stocks that can do well even if inflation stays higher for longer. These stocks are from companies with pricing power.
Pricing power simply means that these companies can pass increased production costs to the consumer. These stocks are sometimes referred to as defensive stocks. But that implies that there isn’t much growth. That’s not the case with these three stocks that offer investors significant growth opportunities even if inflation moves higher.
PepsiCo Continues To Offer A Mix Of Growth And Value
Pepsi or Coke is as interesting a debate in investing as it is in consumer taste tests. But if you’re looking for a stock that offers a good mix of growth and value, PepsiCo (NASDAQ:PEP) is a logical choice. One reason for that is that Pepsi is a little less dependent on its beverage categories. As many investors know, the company also owns the Frito-Lay brand, which gives the company a solid foothold in the snack food arena.
PEP stock has grown 48.11% in the five-year period ending on March 15, 2024. That’s an average stock price growth of just under 10%. And investors have a larger total return when they consider the company’s dividend which pays shareholders $5.06 per share on an annual basis.
Taking a longer view puts the stock’s recent dip into perspective. In the last 12 months, PEP stock is down 2.75% and it’s down approximately 12% from its high of $196.12 on May 12, 2023. This drop, however, isn’t supported by the company’s revenue and earnings which are still growing year-over-year.
At 21x forward earnings, PEP stock looks properly valued compared to the sector average.
A Technology Company That Makes A Mean Burrito
At an eye-popping 51x forward earnings and a share price of $2,771.29, Chipotle Mexican Grill (NYSE:CMG) may seem too expensive for some investors. But there are reasons why you should still consider taking a position in CMG stock.
Since 2021, Chipotle continues to grow revenue and earnings on a year-over-year basis. That’s not just because the company has a loyal customer base that’s attracted to Chipotle’s commitment to sustainable ingredients. Chipotle has proven that like McDonald’s (NYSE:MCD) and Domino’s Pizza (NASDAQ:DPZ) embracing digital technology can help the top and bottom lines.
Before 2020, digital leadership seemed like a luxury, now it’s simply a necessity and Chipotle is one of the leaders in the space.
Another reason to consider buying even fractional shares of Chipotle is the growing belief that it may be getting ready to do a stock split. At the moment, that may not seem necessary. CMG stock is up 71% in the past year and 335% in the last five years. However, trading volume has been declining in the last five years. However, that does include heightened volume in 2020. Nevertheless, since one of the purposes of a stock split is to increase liquidity, it’s something to watch.
Lululemon Is Offering A Discount (On Its Stock)
In their hunt for value (and possibly AI stocks), investors appear to be taking some profits on Lululemon Athletica (NASDAQ:LULU). The company which is famous for its iconic yoga pants and invented the category of athleisure continues to grow its revenue and earnings year after year.
Despite inflation pinching consumers, they still seem to want their fix of the company’s products. And that consumer base is beginning to include men. The company reports that brand awareness of its men’s offerings is around 13%. Nevertheless, that segment grew by 15% in the stock’s most recent quarter.
Nevertheless, LULU stock is down about 9% so far in 2024. But that’s likely just allowing room for the next leg higher. Investors will want to pay attention to the company’s earnings report on March 21. Analysts expect the company to report an 18% annual gain in full-year revenue growth to approximately $9.6 billion.
And that goes along with one of the industry’s best grows profit margins of around 58%.
At 37x forward earnings LULU stock trades at a premium. But some stocks are expensive for a reason and Lululemon has the performance that proves it’s one of those stocks.