Investors should buy these ‘deflation facilitators’ to counter an inflationary era, says Morgan Stanley
Soaring prices, while a headache for all businesses, could force an acceleration of investments in technology that improves productivity, and some innovative companies could benefit the most, found Morgan Stanley. The Wall Street firm believes that persistent inflation in areas such as labor and energy would lead to transformational investments across all sectors. The bank said many of these technologies, such as automation and clean energy, are inherently deflationary. “In an inflationary world, we believe companies that have developed deflationary products/services will become increasingly valuable,” Morgan Stanley equity analyst Joshua Pokrzywinski said in a note. “Cost pressures should prompt companies to accelerate their investments in automation and productivity-enhancing technologies.” Deflationary Forces Cathie Wood, popular investor, also subscribes to this school of thought about deflationary forces taking hold. It has bucked inflation for a while, calling for deflation as innovation trends take off. Recently, the innovation-focused investor has highlighted a number of leading indicators that point to deflationary rather than inflationary forces, such as the rising dollar, falling oil prices and muted global action. ‘gold. Ark Invest’s Wood believes inflation should subside quickly over the next few months as inventory issues resolve. For investors wishing to bet on this deflationary trend, Morgan Stanley has compiled a buy list of “deflation activators” in various sectors and industries. Opportunities Across Multiple Industries The Wall Street firm believes the auto industry will continue to see technological change drive structural deflation in terms of total cost of ownership and extra mile driven. Companies like Tesla, XPO and ArcBest are among the best positioned for this shift in the auto and mobility industry, Morgan Stanley said. Meanwhile, the bank believes clean energy deflation continues to be underestimated, and investors should look to key players like AES, Plug Power and Sunrun. “The energy transition will be a long and delicate balance – and ultimately likely to be highly inflationary,” the bank said. “This should lead to increased investment in deflation catalysts in the energy segment, on which the global economy continues to be entirely dependent.” There are also a host of software names that could benefit from this deflationary trend as more companies upgrade their infrastructure to reduce costs and improve productivity. Some of these software names include Salesforce, ServiceNow, UI Path, Autodesk, and Microsoft. – CNBC’s Michael Bloom contributed to this report.