Third-quarter earnings season officially gets underway this week amid a slew of macroeconomic pressures — inflation chief among them — that have weighed on stocks and forced some companies to pre-announce their results. The Club holdings are not immune from the economic slowdown and market volatility, including Advanced Micro Devices (AMD), which last week pre-announced weaker-than-expected third quarter revenue on the back of lower PC demand. This week, investors and analysts are closely watching a spate of U.S. banks set to report on Friday. Bank of America on Wednesday said macroeconomic pressures will weigh on U.S. banks’ “fundamental growth outlook.” Investors should expect slower loan growth, rising credit costs and a peak in net-interest margins, BofA analysts wrote in a research note. The analysts called out Club holdings Wells Fargo (WFC) and Morgan Stanley (MS) as the “best positioned” and “most favored” names, respectively, to weather some of the headwinds. In looking back at the three months ended Sept. 30, the Club has highlighted four major themes to watch for as our holdings report results. Inflation Health of the consumer The strong dollar Commodity volatility Inflation Inflation remains top of mind for investors, as rising prices continue to weigh on demand for many goods and services. Companies with pricing power, or the ability to raise the selling prices of their products and services while maintaining demand, have a better chance at battling inflation. Club holding Procter & Gamble (PG) has proved particularly apt at this. P & G’s ability to pass on incremental price increases to customers has helped offset its inflation burden. Its quality products, including household-name brands like Tide laundry detergent, Bounty paper towels and Crest toothpaste, allow it to sell at higher price points. When P & G reports fiscal first-quarter earnings on Oct. 19, analysts expect total revenue to come in at $20.39 billion, up 0.3% from the same period a year prior, according to Refinitiv. Earnings-per-share are expected to fall by more than 3%, to $1.56 a share. By looking at a company’s total sales, investors can see how much the business has benefitted from its pricing power. In its fiscal fourth quarter , which was reported back in July, P & G’s sales climbed 3% year-on-year, to $19.5 billion, supported by an 8% hike in prices. The company has also been offering multiple pricing tiers for customers seeking more affordable options. But inflation is a double-edged sword: While it can benefit sales, profit margins can compress. We are optimistic that P & G’s business can weather inflationary pressures because we see its pricing strategy as recession-resistant. But Wall Street reviews have been mixed. In a note to investors this week, Goldman Sachs downgraded P & G from buy to neutral, saying a reversal in market share will be an “overhang” for the stock, as competitors benefit from supply chain improvement and customers trade down…
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