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These Companies Find Ways
to Flourish even in Tough Times

Picking good stocks is challenging at any time. But these days, investors must be wary of companies that are vulnerable to ongoing inflation, as well as lingering supply-chain disruptions, rising interest rates and the scary geopolitical situation in eastern Europe, notes Nellie S. Huang, Kiplinger's Personal Finance.

One way to find companies with those attributes is to scrutinize profit margins, which can show how efficiently a company manages its operations and costs over time, in good and bad periods. Well-managed firms can maintain or expand profit margins through changing economic and market conditions.

The companies below have the potential for improving profit margins. We also looked for growth catalysts that might propel profits higher, as well as reasonably valued shares relative to peers or the broad market.

Amazon.com (AMZN) – The e-commerce giant just raised its annual membership fee for Prime to $139 from $119. It’s a good bet that most of Prime’s current 200 million members, and perhaps millions more, will pony it up.

More important is the shift in Amazon’s overall business to a mix with higher gross margins. E-commerce is still the main business, and online retail is a low-margin trade. But Amazon’s growth now comes from two other businesses with healthy margins: advertising sales and Amazon Web Services, its cloud-computing business. And they’re growing fast. Analysts expect the company to pump out 25% average annual earnings growth over the next three years.

Bio-Techne (TECH) – The pandemic revitalized spending on health-science research, and that’s to the benefit of Bio-Techne. The company is a leader in the production of proteins, antibodies and other compounds used in medical research, drug development and diagnostic tests. Argus analyst David Toung rates Bio-Techne stock a “buy.”

The company is reinvesting its robust operating cash flow to expand production capacity and make what Toung calls tuck-in acquisitions – small cash deals for private companies. It has completed more than a dozen such deals since 2014. Analysts predict average annual earnings growth of 26% over the next three years.

Broadcom (AVGO) – This semiconductor giant is best known for its networking switch chips for data centers and its radio-frequency filters for high-end smartphones. But thanks to well-executed acquisitions, Broadcom is highly diversified across a range of fast-growing tech areas.

The company is extremely profitable and well run. Annual gross margins have climbed steadily in recent years. Meanwhile, costs have barely budged in recent years, and the company pays a hefty dividend, which it has raised for 13 consecutive years.

The semiconductor industry has been dealing with supply-chain bottlenecks since the start of the pandemic, says John Buckingham, editor of investing newsletter The Prudent Speculator. Broadcom isn’t immune to that, but its size and “tight” supplier relationships have helped minimize the impact, he says.

Moderna (MRNA) – Moderna doesn’t fit squarely in the expanding-profit-margin box. The biotech firm, a pioneer in mRNA technology, has only just become profitable thanks to demand last year for its COVID-19 vaccine. It is still working on new coronavirus treatments, including vaccines for specific variants. And it has 44 vaccines and therapeutics in development, half of which are in later-stage clinical trials, including mRNA-based vaccines for the flu and Zika, and a personalized cancer vaccine. What’s more, the company is a financial stronghold, with $17.6 billion in cash and investments and minimal debt.

Editor’s Note: Nellie S. Huang is senior associate editor at Kiplinger’s Personal Finance magazine, www.Kiplinger.com.

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