Economics and business

Has all the potential for economic recovery been already priced in?

According to Morningstar analysts, despite much of the rebound already being priced in, there are some remaining investment opportunities in the market.

The short term economic and market expectations are favourable:

  • The US is close to reaching herd immunity (by end of H1 2021)
  • Stimulus programmes and subsiding pandemic will allow for H2 demand recovery
  • US economic recovery will yield GDP growth of 5.3% in 2021 and 4% in 2022
  • US stock market is approximately 6-7% overpriced, with very few undervalued assets
  • Lockdown-affected services have already rebounded, but some could still gain in H2

Potential winners from travel, leisure, hospitality, and events recovery:

  • Anheuser-Busch InBev
  • Coca-Cola
  • Molson Coors
  • PepsiCo

Despite the e-commerce boom, in-store shopping will recover (esp. in well-diversified malls):

  • Simon Property Group (+ other mall REITs)
  • Macerich
  • Omnichannel stores

Rising demand and rebalancing supply will stabilize oil prices at around $55-60 per barrel:

  • Exxon Mobil
  • Cabot Oil & Gas
  • EOG Resources
  • Schlumberger
  • National Oilwell Varco

Economic recovery will boost cyclical businesses’ performance – much of it is already priced in:

  • Air Products & Chemicals
  • DuPont – industrial production growth and EV exposure

Stocks of many companies, including some big cruise-line, hotel, and retail sector names, have rebounded (even above pre-pandemic levels for some) in Q1 2021 on performance expectations arising from the economic recovery. Many of them are already overvalued and even slight disappointments in H2 2021 and Q1 2022 could wipe-out recent gains. Good examples are:

  • Norwegian Cruise Lines
  • Carnival
  • Royal Caribbean
  • Hyatt Hotels
  • Marriott International
  • Wyndham Hotels & Resorts
  • TripAdvisor
  • Macy’s
  • Kohl’s
  • Nordstrom

The market has been pricing in the recovery mostly within the value-stock category (esp. the ones heavily impacted by the pandemic), with the growth-stock segment now gradually losing its 2020 gains (esp. tech sector and e-commerce). Also, with inflation fears rising, many professional investors and analysts believe that value stocks are actually better positioned to negate inflation pressures on real ROI; hence, the recent value rotation in the markets. Unfortunately, short-term economic recovery expectations have mostly been priced in, with very few actual value opportunities remaining in the markets.

Disclaimer: This analysis represents the personal objective opinion of the preparer and does not aim at offering any sort of financial advice related to buying or selling financial assets/products. The sole purpose of this analysis is to provide financial market information and the opinion of the analyst. Investing in financial assets carries risks and could lead to financial losses.

Published by ARP Management