With inflation running at its hottest levels since 1982, investors are rethinking how companies can cope with growing their business with such a rapid change. And many companies are starting to report that rising costs are compressing profit margins.
However, if inflation does come down later in the year, profit margins for many companies can come roaring back, which could make now an attractive buying opportunity for any firm with a strong brand and customer loyalty.
One such firm is paper goods producer Kimberly-Clark (KMB). The stock got knocked down following earnings. While the company beat expectations, profit margins are down as inflation had led to increased input costs.
Following the share drop, the stock is up just 3 percent over the past year. Even with the recent weakness, earnings are strong enough that the stock now trades at under 19 times forward earnings.
Action to take: Investors may like shares at today’s prices. The stock yields about 3.3 percent to start, and the company just announced its 50th year of consecutive dividend increases, making this a true dividend growth king.
For traders, shares look beaten down along with the rest of the market right now. A trade like the April $145 calls, last going for about $1.05, could lead to mid-to-high double-digit moves higher.
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.