This post provides 10 stocks out of the Nasdaq-100 Index that investors can expect to benefit from a rise in inflation and 10 stocks that are expected to be negatively impacted by a rise in inflation. Financial advisors and investors need to be aware of how inflation is likely to impact their holdings and portfolios. We performed the analysis using the MacroRisk Analytics® platform as of April 13, 2021.
The Eta® profile by MacroRisk Analytics demonstrates an asset’s historical exposures to 18 economic factors in the MacroRisk Analytics model. CPI, or inflation, is one of these factors. If an asset has a positive exposure to inflation, we can expect it to benefit from a rise in inflation.
The MacroRisk Analytics platform makes it easy to identify stocks that have positive or negative exposures to inflation or any other factor in its model. Mondelez International (ticker: MDLZ) is one such company. According to its Eta profile shown below as of April 13, 2021, it has a large positive exposure to CPI as a proportion of its total economic risk (i.e., other economic exposures in the graph below). The MacroRisk Analytics model predicts the company’s stock price might increase approximately 27% with a one standard deviation increase in inflation, keeping other factors constant.
We used the MacroRisk Analytics screening tool to identify 10 stocks out of the Nasdaq-100 Index that one can expect to have the largest positive exposures to inflation as a proportion of total economic risk. Here are the results using data as of April 13, 2021.
The third column represents the proportion of total economic risk that inflation represents for an asset. The higher the number, the more significant the expected effect of inflation changes are on an asset’s stock price versus the other 17 economic factors in the MacroRisk Analytics model.
The fourth column represents the expected percentage change in a stock’s price given a one standard deviation increase in inflation.
Investors can expect Mondelez International (ticker: MDLZ) to have the largest positive inflation exposure as a percentage of its total economic risk (19.1%). If inflation increases one standard deviation, the stock’s price is expected to increase by about 27%, keeping other factors constant. The company operates in the confectioners’ industry and is one of the world’s largest snack companies with famous brands such as Chips Ahoy!, Ritz, Oreo, and others.
During the past 10 years, Mondelez International has enjoyed a positive exposure to inflation as demonstrated by the heat map shown below. Red represents positive and blue represents negative exposure to an economic factor.
Intuitively, this predicted positive response to inflation makes sense given that raw material costs are a small percentage of total operating costs, their businesses are not particularly labor intensive, yet, within their markets, they enjoy pricing power that allows them to raise their product prices in response to a surge in inflation.
The table below shows 10 stocks out of the Nasdaq-100 Index that are expected to have the largest negative response to inflation as a proportion of total economic risk as of April 13, 2021.
Micron Technology (ticker: MU) has inflation risk that represents 15.8% of its total economic risk. If inflation rises by one standard deviation, the stock’s price is expected to drop by approximately 38%, keeping other factors constant. The company operates in the semiconductors industry and provides memory and storage microchips.
Over the past ten years, Micron Technology’s response to inflation has varied. From May 2011 through approximately February 2018, it had a detrimental exposure to inflation (blue markings for the CPI factor) followed by a positive exposure (red markings) until about May 2020 and has recently reverted back to having a negative exposure to inflation.
Intuitively, this makes sense given that all but Kraft Heinz are technology companies where the sale price of their products are usually set by long term contracts, thus providing little short term pricing power when inflation surges.
This post presented stocks out of the Nasdaq-100 Index that have the largest positive and negative exposures to inflation risk. Given the recent expansionary fiscal and monetary policies, a rise in inflation is a possibility. Thus, it is essential to identify assets that one can expect to benefit from or be negatively impacted by an inflation rise. This identification allows one to adjust one’s portfolio appropriately.
This post is possible thanks to MacroRisk Analytics®. This platform provides investment research for 30,000+ individual names as well as investor portfolios. The MacroRisk Analytics® model uses 18 macroeconomic factors to break down the economy’s impact on investment value. Using this patented research, our team has twice won the William F. Sharpe Indexing Achievement Award for ETF/Indexing Paper of the Year. Click here to access this award-winning investment research today! You can find our other blog posts by clicking here.
Edited by Bob Hanisee and Rania Sullivan.