Some companies are able to pass on price increases to consumers easily. Others are not, and often have to absorb the costs. A consumer goods company can likely raise prices just over the rate of inflation most of the time, and not lose too much business.
Companies like a utility or telecom, which may have to wait for approval to raise prices, on the other hand, may not be so lucky.
As investors continue to remain defensive right now, it’s clear that some defensive plays look more attractive than others.
One such company holding up well is Procter & Gamble (PG). The company beat on earnings estimates, and the company raised its sales forecast for the fiscal year.
That’s moved shares close to a 52-week high right now, while the overall market struggles to find a direction.
Shares are up about 16 percent in the past year, about 10 points higher than the S&P 500 over the same timeframe.
Action to take: Investors may like shares here, as the stock yields about 2.3 percent. Plus, the dividend has a history of regular, steady growth. That seems likely to continue, even as the company raises prices.
For traders, the July $165 calls are an at-the-money trade. Last going for about $4.60, traders can likely nab mid double-digit gains on this defensive consumer giant play in the coming months as it continues to rally.
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.