Only the most efficient companies fare well in a period of falling prices and slack productive capacity. Look at the success of low-cost operators such as Southwest Airlines and JetBlue, or Dell's continued dominance in computer hardware. Predicting more such winners in the current economy isn't easy, but one strategy might help: Bet on companies carrying a manageable debt load.
"Having debt is never so expensive as when inflation is low and moving lower," says Jason Trennert, investment strategist and senior managing director at New York brokerage and economic research firm International Strategy & Investment.
Trennert and colleagues don't expect a surge in corporate pricing power anytime soon. What's more, even if trouble in the Middle East forces oil prices up in the short term (see story, p. 126), the deflationary trend is unlikely to abate. Why? Companies, still saddled with too much capacity, will find it hard to pass on energy costs to consumers. "There's no way to sugarcoat a spike in oil prices," Trennert warns.
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