- With the economic recovery on the way to 2021, Morgan Stanley says transportation and infrastructure stocks will be the biggest beneficiaries of value turnover, according to a research note.
- But not all stocks are a winner, Morgan Stanley notes.
- These are the 9 they think you should own.
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With the economic recovery largely slated for 2021, transportation and infrastructure stocks have been a major beneficiary of the value rotation to continue through 2021, according to a Morgan Stanley research note released Thursday.
Transportation values have been hit hard this year, falling around 13% so far this year, but have gained “18% (11pp above the wider market) since entering the market. ‘positive vaccine news flow on Nov. 9,’ the note said.
The positive news sparked a rally in the markets, with investors seeing the vaccine as a way out of national lockdowns and recession, leading to a possible large-scale economic recovery. This broad optimism has favored many of the more battered value stocks, whose businesses depend heavily on the strength of the underlying economy.
In the case of airlines, the news that air travel could return to more historically normal levels was a huge boost, the note said, adding that Morgan Stanley is “positive on the air recovery, but not more than on the market”.
The speed and shape of air passenger recovery is the key topic for airlines and airports. “We believe the rebound will be strong once the travel restrictions are lifted, but 2019 volumes are unlikely to be reached this summer, so we are keeping our preference for Ryanair, as a structural winner, with less downside. in case the recovery takes longer to materialize, “the note added.
However, not all actions offer the same opportunity and, in fact, some should be avoided altogether. The flagship national airlines are less attractive than their cheaper rivals such as Ryanair or easyJet, for example.
“We would avoid Air France-KLM and Lufthansa on the risks of restructuring and valuation and ADP on the regulatory risks, the increase in capex and the disappointment on the retail trade”, underlines the note, noting that “the actions of the airlines could operate in a high yield environment, and would choose easyJet as offering the best risk reward in this scenario (although AF and LHA would also benefit significantly). We would be more cautious on older carriers for environmental concerns for the return trip, as this is likely to further weaken business travel. “
While commercial air travel could struggle next year, Morgan Stanley expects ocean freight volumes and prices to continue to rise in 2021, with Danish freight groups Maersk and DSV Panalpina providing an opportunity interesting to exploit this, according to the note.
“We believe that better fundamentals in shipping are likely to continue into 2021, which will fuel our overweight position in Maersk. We expect air freight returns to normalize, but more slowly than consensus predicts, and that the increase e-commerce spending will be resilient in 2021, this M&A outlook is driving our overweighting on DSV, ”the note added.
In addition, reflation and mergers and acquisitions are a priority for the infrastructure industry, Morgan Stanley said. The bank’s assumption is that of “the resumption of global V-shaped growth and subsequent reflation, particularly in the United States,” the note said.
The Spanish Ferrovial in particular should “play on the expected strength of the recovery of the US economy and reflation trade as well as the strength of the tracks managed by the United States as the new valuation anchor No. 1” , he added. Ferrovial subsidiaries operate throughout Europe, Latin America and the United States. The company has major airports such as Heathrow in London and, across the United States, operates and maintains nearly 160 kilometers of motorways and major highways.
These are the nine stocks that Morgan Stanley says are ideally positioned for the cyclical recovery in transportation and infrastructure.