Raw Materials Prices Have Surged. Corporate Profits Are Likely Next.



Ryan Dezember | Wall Street Journal

Prices are surging for raw materials, leading to higher costs for companies from home builders to clothing makers.

If history repeats, that will be a boon to corporate bottom lines and investors as well.

Rising material costs usually foreshadow fatter profit margins, according to Jonathan Golub, chief U.S. equity strategist at Credit Suisse Group.

Higher input costs generally accompany broad economic growth, which allows companies to pass along added expenses through higher prices of their own. Also, fixed expenses, like factory equipment, can be spread over greater sales.

Mr. Golub tracked operating margins among companies included in the S&P 500 stock index and found rises and declines that mirror earlier moves in materials prices, for which he used an index of commodities that includes zinc, rubber, steel scrap and burlap.

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