To The Moon

Profit margins are becoming increasingly important to investors amid a backdrop of hyperinflation that continues to erode public company profits. Even Musk's electric car company $Tesla Motors(TSLA)$  also witnessed sharp decline in profit margins. Fortunately, there's still no shortage of moneymakers in the S&P 500.

According to the data analysis results from S&P Global Market Intelligence and MarketSmith, 13 S&P 500 components reached over 30% of the adjusted net profit margin. Such a high level of profitability is rare in the market. By comparison, FactSet data show that the average profit margin for publicly traded companies is only 11.6%.

In this list, Warren Buffett's $Berkshire Hathaway(BRK.A)$ $Berkshire Hathaway(BRK.B)$ are at the bottom with an adjusted net profit margin of 30.3%, while is still much higher than the Tesla's 5.4%. Wedbush analyst Dan Ives told clients that Tesla's third-quarter results could be summarized as a "mini-disaster".

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Profit Margins Become an Important Selection Criterion for Stock

 The high profit margins of these S&P 500 companies represent their ability to maintain pricing power, which is key during periods of inflation; and the market has responded positively. The prices of these 13 stocks have risen an average of 22.4% this year, well ahead of the S&P 500's 10%. In addition, since the stock market peaked this year, the $S&P 500(.SPX)$ is down nearly 8%, while these stocks are down only 4.5% over the same period.

 In addition, it's becoming harder for publicly traded companies to maintain their profit margins. FactSet's John Butters says the profits margins of S&P 500 declined from 11.9% a year ago to 11.6%, which is the seventh consecutive quarter of year-over-year declines. 

Tesla's sliding margins 

As for the topic, Tesla is a prime example. In the midst of its just-released third-quarter report, Tesla's profit margins fell to just 5.4%, well below the 10.4% seen in the same period a year ago and the 7.7% in the June quarter, leading to the sharp decline of the stock price. The level of adjusted margins was only marginally higher than $General Motors(GM)$ 4.4% and $Ford(F)$ 3.3%.

Other High-Margin Companies in the S&P 500 

So what kind of S&P 500 companies have the highest profit margins? 

First we thought of the Artificial Intelligence (AI) concept, which has been a big hit this year. Thanks to the huge demand for AI products as well as AI stocks, it's no surprise that $NVIDIA Corp(NVDA)$ posted an adjusted net profit margin of 32% for the most recent quarter with its chips.

What’s more, Credit card giants $Visa(V)$ and $MasterCard(MA)$ also posted net margins of 42% and 36%, respectively, thanks to continued volume growth. What we're not so sure is whether these companies will be able to maintain this level of profitability if inflation continues to spike?

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