Disinflation — not inflation — will be a key driving force in the economy this year, according to Jefferies. Therefore, investors can find winners this year by looking at the stocks with a positive correlation to inflation cooling down. “U.S. inflation peaked almost six months ago,” Jefferies’ Desh Peramunetilleke, the firm’s head of microstrategy, wrote in a note Thursday. “Disinflation is a key assumption for our roadmap for 2023.” The Consumer Price Index reading for December showed a 0.1% decline from November. On an annual basis, inflation increased by 6.5%. At its peak, inflation increased at a 9.1% annual rate in June. Jefferies looked at changes in inflation expectations and which equities had the highest correlation to those changes. The following stocks had the biggest negative correlation to increasing inflation expectations. So Jefferies reasons that these stocks will have the most to gain this year as disinflation takes over. Procter & Gamble was picked as one of the top disinflation plays, with a strong negative correlation to inflation. While P & G on Thursday reported declines in revenue and profit as a result of higher prices, the company raised its 2023 sales growth expectations to a range of 4% to 5%. Jeffries also chose Costco as a top disinflation performer. Another research firm, Bernstein, picked the stock as a “solidly defensive name” on Jan. 13, mentioning its strong quarterly results and growing sales in December, with expectations that sales will continue to be higher in the upcoming year. Buy high quality The Federal Reserve’s continual rate hikes despite recession concerns bear similarities to the 1980s when aggressive monetary tightening by then Fed Chair Paul Volcker set off a long period of disinflation, according to Jefferies. “The 1980s disinflation cycle brought about by higher rates and easing supply side pressures provide a good template for the current cycle,” the note said. The firm noted that during the disinflation cycle from 1980 to 1983, stocks with high-quality fundamentals outperformed low-quality names. Jefferies gave clients a list of names it believes are quality stocks trading at reasonable prices. It looked at a number of criteria to find these names, including: High profitability based on return on equity and return on invested capital Reasonable valuations based on their forward price-earnings ratio Solid balance sheets with low debt and high cash flow Among the names that made Jefferies’ quality screen are: Tech giant Cisco is one of the quality stocks that should thrive in this disinflation era, Jeffries said. CEO Chuck Robbins said Wednesday that Cisco’s consumer base remains solid, as most of its clients’ IT budgets appear relatively resilient. Ulta has been a strong performer and has hit all-time highs in recent weeks. Beauty products are still benefiting from a post-pandemic purchasing surge with minimal inventory issues. The stock has shown gains even on days marked by large sell-offs and recession fears. Generally, Jefferies noted that sectors such as business services, staples and consumer services outperformed the most during the Volcker disinflation era, while commodities and industrials lagged.
Sumber: www.cnbc.com