Inflation is expected to increase throughout the summer as the economy rebounds while experiencing supply constraints.
UBS said Wednesday it expects this scenario to be a temporary phenomenon that gives an advantage to demand-driven stocks with higher pricing power. Stocks of companies with strong pricing power tend to outperform during high inflation periods because the companies have the ability to raise prices without a loss of business.
UBS screened several large-cap companies, which tend to beat small caps in inflationary periods, with the highest pricing power and margin momentum relative to their sector.
“A number of factors make the strong vs weak pricing power trade attractive now,” UBS said. “It’s working across most sectors, it’s relatively cheap, has better pricing trends and much lower margin expectations for Q2.”