Oh no — inflation is back. But higher prices aren't a worry for the S&P 500 companies with incredible pricing power — consumers are willing to pay up for their goods.
Ten S&P 500 stocks, including VICI Properties, CME Group, Nvidia and Visa, command impressive operating margins from continuing operations of 45% or higher, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSurge. That means these companies keep 45 cents of every dollar of revenue even after paying operating costs.
Such a high operation margin shows you how consumers are willing to pay for these companies' products no matter how high the price. That's a valuable attribute as inflation remains stubbornly high. There's a concern at other companies consumers might simply walk away if prices get much higher. And yet, stocks of companies with this much pricing power are outperforming the S&P 500.
"In terms of the broader market, the S&P 500 has historically declined 0.8% when core CPI came above estimates," said Adam Turnquist, chief technical strategist at LPL Financial.
Pricing Power In The S&P 500
Commanding a 45% operating margin isn't the norm. Most S&P 500 companies don't have anywhere near that kind of pricing power.
It's several times more than the average S&P 500 company's 13.9 operating margin in the past 12 months. In fact, more than 30 stocks in the S&P 500 reported a negative operating profit margin. Even Apple, known for extracting top dollar out of its consumers' pockets, only sports an operating margin of 26.2%.
And compare Apple's operating margin with peer technology firm Nvidia, a darling in the AI market. Nvidia's operating margin is a whopping 48.8%. Its software and hardware tools are so specialized for the demands of AI and in short supply that consumers are willing to pay whatever the price. No wonder shares are up more than 83% just this year.
Investors appear willing to pay up for shares of companies with the most pricing power. Shares of the 10 companies with the highest operating margins are up an average of 11.7% this year. That tops the S&P 500's 8.8% gain.
Other Price Kings
The S&P 500 company with the highest operating margin isn't in tech. It's New York-based real estate firm VICI. The company owns a huge portfolio of gambling properties like Caesars Palace Las Vegas, MGM Grand and Venetian Resort Las Vegas.
The company sports an operating margin of 70.7%. That's the highest in all of the S&P 500. Shares are down more than 7% this year. But that's more of a function of slowing profit growth. Analysts think the company's profit will only rise 8.1% this year, down from nearly 95% profit growth in 2023.
But financial firms with huge moats guarding their businesses also have great pricing power. CME Group, a leading operator of trading marketplaces, holds a 57.9% operating margin. And credit card processing king, Visa, drives a 53.9% operating margin. And the higher prices for goods and services go, the higher Visa's take. Shares of Visa are up 9.2% this year.
If inflation picks up, these S&P 500 stocks won't necessarily benefit. But they are in a good position to handle higher prices if they do arrive.
S&P 500 Companies With Pricing Power
Highest earnings from continuing operations margin (past 12 months)
| Company | Ticker | YTD stock % ch. | Operating margin | Sector |
|---|---|---|---|---|
| VICI Properties | -7.3% | 70.7% | Real Estate | |
| CME Group | 3.6% | 57.9 | Financials | |
| VeriSign | -6.6% | 54.7 | Information Technology | |
| Visa | 9.2% | 53.9 | Financials | |
| Marriott International | 11.5% | 48.9 | Consumer Discretionary | |
| Nvidia | 83.4% | 48.8 | Information Technology | |
| Airbnb | 22.5% | 48.3 | Consumer Discretionary | |
| Public Storage | -5.2% | 47.5 | Real Estate | |
| Simon Property Group | 5.8% | 46.2 | Real Estate | |
| MSCI | 0.2% | 45.4 | Financials |
