How to set up the portfolio against the margin compression
The past year the margin pressure has been the biggest industries such as media & entertainment, financials, banks, semiconductors, utilities, real estate, and health care equipment. On the flipside industries such as energy, insurance, transportation, retailing, software, and pharmaceuticals have preserved or even expanded their margins. Based on the expected margin compression dynamics in 2023 we recommend investors balance their portfolios away from the hardest hit industries as things could get even worse. This idea overlaps with our thesis the physical vs digital world. Another way to reduce risk during margin compression is to hedge the portfolio using instruments that rise in value when the S&P 500 or another equity index falls in value.
On a single stock basis the list below highlights the biggest companies in each of the categories mentioned as those that have preserved or expanded their operating margins. The list is for inspiration and should not be viewed as investment recommendations.
- Exxon Mobil
- Union Pacific
- Johnson & Johnson
- Eli Lilly