Best stocks to buy now
Increased inflation drives up costs for companies, but not all bad news: Bank of America has named eight stocks which it believes will actually benefit from higher prices.
The stock selection includes:
DSV Panalpina of Denmark and Deutsche Post of Germany are two companies that Bank of America expects to see “record earnings growth and margin expansion in 2021” as a result of supply-chain disruption.
According to research analyst Muneeba Kayani, port congestion and a shortage of container boxes have had “significant positive effects” for freight forwarders and shipping linings.
According to Scemama, ASML increased its 2021 sales growth guidance from “double digit” to “upwards of 30 percent,” owing to “significantly higher demand for deep ultraviolet (DUV) lithography equipment (used in automotive, industrial, consumer, and IoT applications).”
According to Bank of America research analyst Alastair Ryan, Dutch bank ING appears to be a key beneficiary of improved economic growth and interest rate outlook.
“If higher inflation leads to a faster recovery in policy rates, this should be a tailwind for the sector given the positive impact on bank revenues,” he said, noting that early signs of inflation had led to investors pricing in ECB interest rate hikes in three years.
He also stated that ING has a strong track record of digitalization, which should mitigate the impact of any cost inflation on the business.
According to Bank of America analysts, the possibility of higher interest rates as a result of an increase in inflation should benefit some insurers, citing ASR in the Netherlands and L&G in the United Kingdom as examples.
According to the analysts, “life insurance companies would be relative beneficiaries if rising cost inflation leads to higher interest rates.”
Virgo wrote about Siemens, “Supply chain investment and an inflationary environment should add to the momentum in DI [digital industries] earnings.”
He also chose Atlas Copco, a Swedish manufacturer of industrial tools and equipment.
“We believe Atlas’ market-leading pricing power and greater ability to pass on any raw material price increases to consumers (due to its high-quality products and market share) will also help to drive continued earnings / share outperformance through 2022 in an inflationary environment,” Virgo added.
Delta and Alaska Air upgraded
Investors should bet on Delta Air Lines and Alaska Air after companies have managed the pandemic without significant cash increases, said one of Wall Street’s top industry analysts.
“The market has punished these ‘non-diluters,’ possibly by implying that they will have to dilute in the future, that they made a mistake by not diluting, or that their pre-Covid margin gaps will close post-Covid. “We disagree,” said the note.
Delta shares are down 7% this quarter, while Alaska Air shares are down 9%. Over that time period, both have underperformed the US Global Jets ETF.
There are still issues for the companies, such as rising prices and the uncertain return of business travel, but Keay believes that well-managed businesses should succeed.
“To be sure, the lack of return business travel is a concern for DAL, but they didn’t become stupid overnight. And we are not convinced that business travel cannot be stimulated,” the note stated.
Wolfe raised Delta’s price target to $55 per share from $37, representing a 23% increase. Alaska’s price target of $78 per share is 25% higher than the stock’s closing price on Thursday.34
In addition, Wolfe raised United Airlines from underperform to peer perform.