Stagflation is a challenging economic condition characterized by the occurrence of high inflation, slow economic growth, and relatively high unemployment. This has led to my list of stocks facing stagflation concerns.
However, in a broad sense, Jerome Powell emphasized that there is neither significant stagnation nor high inflation. Stagflation typically requires GDP growth to fall below 1-2% and inflation to rise above 3-4%, conditions not present in the United States currently. The economy is experiencing adverse production shocks, like spikes in oil prices and sanctions, rather than a broad economic decline.
There are still some stocks facing stagnation concerns on a company-specific level that seem to mirror what economies can go through on a macro level. Although the threats of stagflation remain low (by the numbers today), if stagflation were to hit, these companies may be the worse hit as they could already be showing symptoms of distress.
Stocks Facing Stagflation Concerns: Walmart (WMT)
Walmart (NYSE:WMT) is grappling with rising costs and slowing consumer spending. With inflation eroding purchasing power and economic growth slowing, Walmart’s profit margins are under pressure, posing significant challenges for the retail giant.
In fiscal year 2024, Walmart reported total revenue of $648.1 billion, a 6% increase from the previous year, but also noted significant cost pressures impacting profitability. The company’s net income for FY24 was $15.5 billion, up 33% from FY23, yet operating margins remain under pressure due to these rising costs.
For 2024, Walmart has outlined a cautious but optimistic outlook. The company expects consolidated net sales to grow between 2.5% and 3% and aims for operating income to increase by approximately 3%. The brand’s EBITDA margin has steadily eroded by a few percentage points from 2017, which could be a cause for further concern.
WMT is generally a great stock I believe, but it must do more to prevent the slow grind on its margins.
Ford (F)
Ford (NYSE:F) is contending with supply chain disruptions and increased production costs. Stagflation’s impact on consumer demand for automobiles and higher input costs could lead to declining sales and profitability for Ford.
Despite achieving total revenue of $176 billion in 2023, up 11% year-over-year, profitability remains under pressure for Ford.
For 2024, Ford has provided cautious guidance, projecting an adjusted EBIT of $10 billion to $12 billion and generating $6 billion to $7 billion in adjusted free cash flow. The company anticipates flat total costs year-over-year, with a focus on reducing material, freight, and manufacturing expenses by $2 billion. However, these efforts are offset by higher labor costs and expenses.
Analysts have a mixed outlook on Ford. While some see potential for stock price growth, others remain skeptical due to ongoing economic uncertainties and the high costs associated with the company’s EV strategy and supply chain issues. The average price target for Ford’s stock ranges between $13.52 and $13.78.
Procter & Gamble (PG)
Procter & Gamble (NYSE:PG) is experiencing higher commodity prices and shipping costs. As consumers cut back on spending due to inflation, P&G may struggle to maintain its sales growth and profit margins.
PG is a very safe dividend stock to hold, given its payout ratio and the strength of its balance sheet. It has also managed to pass off many of the added costs onto consumers. However, I believe that people’s elasticity for further price hikes in the future may become slower since household budgets may have already reached their limits a long time ago.
In fiscal 2024, the company reported mixed results: net sales increased by 3% to $21.4 billion in Q2, but GAAP EPS decreased by 12% due to a significant impairment charge related to its Gillette business. Organic sales rose by 4%, driven by higher pricing despite a 1% drop in shipment volumes.
P&G expects a challenging economic environment for the rest of 2024, with projected all-in sales growth of 2-4% and organic sales growth of 4-5%. The company revised its GAAP EPS outlook, anticipating a decline or stability, which contrasts with its previous expectation of 6-9% growth.
On the date of publication, Matthew Farley did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.