While we’re coming up on the next Fed meeting, which could give a sign that the central bank’s interest rate hikes are finally over, we’re not out of the woods yet. Inflation has slowed over the past year, but it’s still running at 5 percent.
That’s one of its highest levels in decades, and more than twice the central bank’s inflation target. Investors should still look for companies that can handle inflation by passing on the costs to their customers via higher prices.
One place offering safety in that regard is consumer goods companies. We’ve seen that in the past week, with the earnings beat and raised sales growth outlook by Procter & Gamble (PG) last week.
The announcement gave shares a boost, but they’re still a bit off their 52-week highs. More importantly, the company’s profit margin is near 18 percent, a high level for a company that has to manufacture and distribute physical goods.
Action to take: Shares are fairly valued at 24 times forward earnings. But the company is an industry leader in a number of consumer goods products, and will likely always carry a premium. Shares are worth buying at current prices or on any future market drop lower.
For traders, shares are likely to trend higher. The October $165 calls, last going for about $4.55, offer mid-double-digit returns from a move higher in P&G in the months ahead.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.