Companies are playing down price hikes. Smart investors need to embrace them.

·3 min read

If you are waiting to hear about more price increases from your favorite companies, don’t hold your breath. Instead, their CEOs are spewing jargon like: "We are engaging in holistic margin management" and "net price realization."

I kid you not.

So you'll have to figure out who is hiking prices by deciphering corporate mumbo-jumbo.

While companies are turning themselves inside out to avoid the inevitable admission, they are quietly raising prices or shrinking packaging to compensate for increases in the wages they pay workers and the prices they pay for materials, trends that are threatening their profits.

Whether rising inflation is “transitory” as the Federal Reserve claims, or "sticky" as measured by the Atlanta Fed, prices on everything from rent to a gallon of gas to a Chipotle burrito are rising.

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As interest rates remain range-bound and bond performance has generally been moribund, where should investors be focused in the second half of 2021?

Last week, Federal Reserve Chairman Jerome Powell acknowledged he is retiring the phrase “We are not even thinking about thinking about raising rates,” and seven Fed voting members indicated an interest rate increase in 2022. The Fed, which projected 2.4% inflation in March, has revised that number to 3.4% in May as the numbers have come in much hotter than they expected. How do you make money in this environment?

Buy companies with pricing power

As the economy reopens, it may make sense to look at parts of the economy that serve restless consumers. Look at casual dining and travel-related companies, for example. As prices rise, is the company able to maintain demand? If yes, then margins and earnings should remain healthy. And in times of rising prices don’t underestimate the attraction of discounters. With rents and energy costs on the rise, consumers will seek ways to conserve dollars.

As growth slows, increase your exposure to growth-at-a-reasonable-price companies. These are companies that can produce reliable growth during periods of slowing economic growth. The growth-at-any price trade worked well coming out of the economic shutdown; now it may be time to turn your attention to growth companies trading at attractive valuations relative to their history and compared with the market. Look for companies in segments with sustainable secular growth like the cloud, cybersecurity, health care – companies you are happy to own for the next 10 years. A bonus? Growing dividends. Any investor can review a company’s dividend growth history and dividend policy. Dividends are a powerful compounder in the total return calculation.

Focus on sustainable narratives

The stay-at-home trade may have seen its best days, which is not to say those stocks can’t continue to deliver returns. But the rate of change in growth may be slowing for their products and services. Identify themes that are likely to remain intact in the coming years. If you are a fan of electric cars, you probably know an EV requires four times the copper of a combustible engine car. Copper supply is way behind expected demand.

Cybersecurity has been an especially hot topic in recent months and likely will be for years. The cloud and semiconductors are essential to almost every industry. Cryptocurrencies and blockchain continue to evolve payment systems. Look for ways to invest around trends like this. Be prepared to dollar-cost average, waiting for opportunities on pullbacks, and be prepared to hold these investments for some time.

Pricing power and sustainable growth are hallmarks of great companies whether value trades or growth trades are in favor. Finding these companies and then having the discipline to add to them in periods of weakness will serve your portfolio well. Think of it as your own “strategic revenue management” project.

Nancy Tengler is chief investment officer at Laffer Tengler Investments and the author of “The Women’s Guide to Successful Investing.”

The views and opinions expressed in this column are the author’s and do not necessarily reflect those of USA TODAY.

This article originally appeared on USA TODAY: Rising prices: 401(k) investors need to find stocks that will thrive