These U.S. stocks could suffer most from stagflation, Barclays says

By Vivien Lou Chen

The specter of waning U.S. demand combined with persistent inflation is adding up to the potential for a stagflationary environment that could hit some well-known stock names, according to one Wall Street bank.

Two names at or near the top of the list are Kimberly-Clark (KMB) and Procter & Gamble (PG), according to a note from Barclays strategists Stefano Pascale, Anshul Gupta, Riddhiman Dass and Tejas Shah on Tuesday. Kimberly-Clark's brands include Scott toilet paper, Kleenex facial tissue and Huggies disposable diapers. Procter & Gamble's products include Pantene shampoo, Crest toothpaste, and Olay skin care.

The selection of consumer-staple companies seems a bit counterintuitive because they are considered to be part of the defensive sector, where consumers tend to keep buying products when times are tight. Ball (BALL), a provider of aluminum packaging, is also near the top of the list at Barclays as a representative of the materials sector, which is cyclical and tends to underperform when the economy is struggling.The line of thinking at Barclays (UK:BARC) starts with the idea that the primary headwind in a stagflationary environment "would come from margin pressure driven by negative operating leverage," the strategists said. The materials sector, in particular, is exposed to waning pricing power after having enjoyed sales that were about 20% above pre-pandemic levels during the fourth quarter of last year, they said.

"At the single stock level, KMB (Kimberly-Clark), BALL (Ball) & PG (Procter & Gamble) top our long put screen of high-flying names with cheap vol that stand to lose the most in a stagflationary environment," the strategists at Barclays wrote.

On Tuesday, U.S. stocks DJIA SPX COMP finished mostly higher, with the Dow Jones Industrial Average rising for a fifth straight day. Shares of Kimberly-Clark closed down by less than 0.1%. Meanwhile, Ball and Procter & Gamble shares advanced by 0.5% and 0.8%, respectively.

-Vivien Lou Chen

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05-07-24 1617ET

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