Inflation has hit a 40 year high due to strong customer demand amid ongoing labor and supply shortages.
While economists are mixed regarding how close we may be to a peak in inflation readings, it's generally agreed that the main drivers of this currently high cost of living will remain with us for the foreseeable future.
During that similarly high inflationary period 40 years ago, legendary investor Warren Buffet highlighted two characteristics that help companies thrive amid high inflation in his annual letter to shareholders.
First is an ability to increase prices easily and second, is an ability to take on more business without having to spend too much.
Many of the top holdings in Buffett's Berkshire Hathaway (BRKB) fit this profile today, which has BRKB in a confirmed uptrend while hitting a new high in price.
WEEKLY CHART OF BERKSHIRE HATHAWAY, INC. (BRK/B)
By most accounts, BRKB is extended and due a period of consolidation however, the MACD crossover on the weekly chart above, points to much further upside. The lengthy base prior to last week's breakout is also a positive as the longer the base, the longer the potential advance out of that base.
Berkshire Hathaway invests in many well known companies and below are two from Buffett's portfolio that have an ability to increase prices without having to spend much. They also have additional positive characteristics.
DAILY CHART OF KROGER CO. (KR)
First up is Kroger Co (KR) which is a retail supermarket chain that operates over 2500 stores nationwide. In late December, the company authorized a $1 billion stock repurchase program which has investors excited. In addition, Kroger has been accelerating the growth of their digital grocery operations which has grown by 103% over the last 2 years.
Their proprietary data from these digital operations has helped them be strategic about passing increased costs onto their customers which has helped KR see improved profits. The stock broke out of a 4-month base on volume this week with its momentum indicators in positive territory.
WEEKLY CHART OF COCA COLA CO. (KO)
Coca-Cola (KO) is a long-time holding of Buffets as he'd held the company since the late 80's. The company has an entrenched market position which gives it pricing power relative to newcomers. KO first began raising prices last July which improved their profit margins substantially.
Coca-Cola also has one of the longest dividend growth streaks in the market with almost 60 consecutive years of increasing their dividend. The 2.8% yielder has been on a run over the past couple of months with today's gain pushing the stock out of a 1-week base on volume. The weekly chart above points to a stock with further near-term upside.
High inflation is just one of the many powerful forces that's driving price action in the markets right now. Higher interest rates as well as the beginning of a new earnings season, is also pushing volatility higher. If you'd like to be kept alerted to what's important in the markets and stocks poised to benefit from the current dynamics, trial by twice weekly MEM Edge Report by using this link here.
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Mary Ellen McGonagle, MEM Investment Research
