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Global deflationary pressures are building and this means only the best companies with the strongest brands are able to raise prices. According to Merrill Lynch chief quantitative strategist Savita Subramanian, these are the stocks investors should own.

In a recent research report, Ms. Subramanian writes: "Pricing power was a key theme in our 2016 year-ahead report as … the ability to raise prices is even more valued in a disinflationary world. … Two potential indicators of pricing power are gross margins that are stable or increasing and brand equity. Over the last five years, companies with gross margins that have remained constant or increased have outperformed companies that have experienced gross margin compression by almost 40 per cent."

Ms. Subramanian's suggests using Forbes magazine's list of the world's top 100 brands as a universe of stocks for analysis, and with this report I ranked all public members of this list by five-year stability of gross margins in search of companies with true pricing power.

A number of companies on the Forbes list couldn't be analyzed. Porsche, ESPN, Rolex, Pampers and Frito-Lay, for example, are brands owned under a larger corporate umbrella. Others, such as IKEA, are not traded publicly. Royal Bank of Canada is on the Forbes list, but like all large financial institutions, gross margins are not an appropriate valuation tool.

All of these considerations left a list of 70 stocks representing the world's most powerful brands. To provide the most conservative list of picks, I ranked all of them by standard deviation of gross margin results over the past five years. The intention was to uncover the most stable profit-generating companies among global leaders.

Any investor considering buying one of the stocks on the list would need to do a lot more fundamental research, but I found it very interesting as a starting point. Wal-Mart's mammoth operational scale and lowest price focus put it at the top of the list, but the meagre three-year average annual return of 0.5 per cent makes it less interesting.

Colgate-Palmolive Co. is the third-most-consistent profit generator and has provided investors with solid returns. It is, however, a bit expensive for a slower-growth market sector with a price-earnings ratio of 24 times. Starbucks Corp. and fitness apparel giants Nike Inc. and Adidas AG aren't cheap either, but have stronger growth.

Cosmetics multinational Estée Lauder Cos. Inc. is, for me, the biggest surprise. Gross profit margins have been extremely consistent at a very healthy 80-per-cent level that rivals software and biotechnology firms. Bayerische Motoren Werke AG was another surprise – who knew that arguably the world's leading luxury auto maker was trading at an attractive (at least on the surface) 8.6 times trailing earnings?

Again, this table of numbers is not sufficient reason on its own to buy any of the stocks. But Ms. Subramanian's investing framework of emphasizing powerful brands with stable profitability seems perfectly suited to current global market conditions.

Margin Stability