- Four decades of high inflation have hurt stocks, the economy, and consumers.
- Morgan Stanley believes that price increases will cause companies to change.
- These 48 inflation-defying stocks should set you up well for the next decade.
Inflation has been the key story of 2022 as investors grapple with what stratospheric price increases mean for stocks, the economy, and their daily lives.
People under 40 are currently in uncharted territory, as prices haven’t risen at this rate since the early 1980s and were unusually stable in the decade before this year.
That unidentified group may believe that if and when inflation falls, prices will fall as well. Unfortunately, that is not the case, as falling inflation simply means that prices are rising at a slower rate.
Prices can only fall to previous levels if there is deflation, or negative inflation. While none of the top firms on Wall Street expect inflation to drop below zero anytime soon, a team of 13 analysts and strategists at Morgan Stanley led by CIO Michael Wilson wrote in a note on July 20 surging inflation will lead companies to change, which will keep inflation under control and push prices down in the long run.
“Cost pressures should make companies accelerate investments in automation and productivity-enhancing technologies,” Morgan Stanley analysts and strategists wrote in the note. “Many of these technologies are deflationary in nature.”
The wave of “transformational investment” will occur despite a cloudy macroeconomic environment, the team wrote, as companies seek to boost productivity in the face of slowing global population growth and also cut costs as the outbreak geopolitical tensions.
The potential for continued wage inflation and a lack of fixed-capital investment in the US will also boost corporate investment in automation and digitization, according to Morgan Stanley. Rising wages threaten company profitability and will incentivize companies to replace workers with machines, the note read, while slowing productivity growth in recent years will cause companies to spend more on innovative technologies that make doing business cheaper.
48 deflationary stocks to target
Morgan Stanley’s team compiled a list of 48 companies that use automation and other forms of technology to reduce costs and improve productivity. These companies are well positioned for the next decade, which will likely be characterized by higher nominal GDP and high volatility, and should see “higher demand and greater competitive advantages,” the note notes. read.
“In an inflationary world, we believe that companies that have developed deflationary products/services will be more valuable, as long as those companies have high barriers to entry relative to those products/services,” the note said. read.
Below are 48 stocks that are on Morgan Stanley’s “buy list” because of their deflationary properties. Each stock is accompanied by its ticker, market capitalization, industry, and selected analyst commentary, if available. Note that shares of Eurofin, Teradyne, Realtek and Shoals Technologies have been assigned by the company a neutral “equal-weight” rating rather than a bullish “overweight” rating.