The headline PPI number, which is reported on a month/month seasonally adjusted change, is nearly meaningless to us. Instead, we like to look at the report to see if there are any industries that have unexpected or unrecognized gains or declines in pricing power.
Does it work? Well, anecdotes and evidence are two different things – but anecdotally last month’s post got off to a good start. We showed the (then-current) chart on fruit and vegetable canning inflation (the now current is below) and asked if it might signal that it is finally time to buy Del Monte (DLM - Annual Report).
As it turns out, it might have been a good time after all. Here is what happened to Del Monte since:
The pricing power is still creeping up.
We also asked, “With aluminum prices rising, will Alcoa (AA) shares follow?” They did.
The last two months we noted that Air Products (APD) and Praxair (PX) appeared to be defying gravity, as their share prices were rising while their pricing power was falling. The stocks are still high, but pricing power is returning so we’ll scratch that concept for now.
We had found the strength in paint and coating prices mysterious given the slowdown in housing and autos, two big users of paint and coatings. As time passes, the pricing power seems to be evaporating.
With the pricing power in industrial valves, we’re thinking Curtiss Wright’s guidance is too conservative. The shares fell on the news.
And last but not least, things look about as good as they can get for computer makers.
