- Four-decade-high inflation has hurt stocks, the economy, and consumers.
- Morgan Stanley believes that price surges will cause companies to innovate.
- These 48 inflation-fighting stocks should be set up well for the next decade.
Inflation has been the defining story of 2022 as investors grapple with what stratospheric price surges mean for stocks, the economy, and their day-to-day lives.
People under 40 are currently in uncharted territory, given that prices haven’t grown at this rate since the early 1980s and were unusually stable in the decade prior to this year.
That uninitiated group may believe that if and when inflation eventually decreases, prices will as well. Unfortunately that’s not necessarily the case, as falling inflation simply means that prices are increasing at a slower rate.
Prices can only fall back to prior levels if there’s deflation, or negative inflation. Although none of the top firms on Wall Street expect inflation to fall below zero anytime soon, a team of 13 analysts and strategists at Morgan Stanley led by CIO Michael Wilson wrote in a July 20 note that surging inflation will lead companies to innovate, which will keep inflation in check and push prices down in the long term.
“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 inherently deflationary.”
This wave of “transformational investment” will occur despite a cloudy macroeconomic environment, the team wrote, as companies aim to boost productivity in the face of slowing global population growth and also cut costs as geopolitical tensions flare.
The potential for persistent wage inflation and a lack of fixed-capital investment in the US will also catalyze corporate investment in automation and digitization, according to Morgan Stanley. Rising wages threaten corporate profitability and will incentivize firms to replace workers with machines, the note read, while fading productivity growth in recent years will cause companies to spend more on innovative technologies that make it cheaper to do business.
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 firms are well-positioned for the next decade, which will likely be defined by higher nominal GDP and elevated volatility, and should see “heightened demand and greater competitive advantages,” the note read.
“In an inflationary world, we believe companies that have developed deflationary products/services will become increasingly valuable, as long as those companies have significant barriers to entry with respect to those products/services,” the note read.
Below are the 48 stocks that are on Morgan Stanley’s “shopping list” due to their deflationary attributes. Along with each stock is its ticker, market capitalization, industry, and select analyst commentary, if available. Note that shares of Eurofin, Teradyne, Realtek and Shoals Technologies have been assigned a neutral “equal-weight” rating by the firm instead of a bullish “overweight” rating.