Now that vaccine rollouts seemingly have the world well on the way to containing the pandemic, investors are shifting their focus to stocks that could outperform in an environment of sharp economic growth and elevated inflation levels. The U.S. Federal Reserve just raised its 2021 inflation forecast from 1.8% to 2.4%. In an environment of economic growth and reflation, Bank of America analysts say small-cap stocks will likely outperform large-cap stocks and value stocks will likely outperform growth stocks. Here are eight of Bank of America's top recovery and reflation stocks to buy.
Analyst Jessica Reif Ehrlich says Comcast's NBC Universal media business (CMCSA) is extremely exposed to the economic reopening. Also, she says the company's Universal Studios theme parks will likely benefit from pent-up demand this summer. The company's film and TV businesses should soon return to normal production, while its Peacock streaming service will get a boost from a rebound in the advertising market. Finally, Ehrlich says Comcast has an attractive valuation, trading at a projected 2022 enterprise multiple of just 8.7. Bank of America has a "buy" rating and a $68 price target for CMCSA stock.
Walt Disney Co.
Since its launch in November 2019, Disney (DIS) streaming service Disney+ has generated mind-boggling subscriber growth. As of February, Disney+ already had 94.9 million subscribers, thanks in large part to all the people stuck at home in 2020. Now that Disney+ has capitalized on the health crisis, Ehrlich says pent-up demand for theme parks and cruises will be a tailwind in 2021. Movie theater reopenings, a rebound in the advertising business and a return to normal sports seasons are growth drivers in 2021. Bank of America has a "buy" rating and a $223 price target for DIS stock.
Analysts anticipate elevated leisure travel spending in 2021, which is good news for Marriott (MAR). Analyst Shaun Kelley says Marriott will also benefit from inflation following trillions of dollars in U.S. stimulus measures. Inflation benefits both Marriott's room rates and fees. Kelley says hotel pricing is more fluid than longer-term lease revenue given room prices adjust daily based on supply and demand. Recent hotel pricing data suggests the industry may recover more quickly than it did following the Great Recession. Bank of America has a "buy" rating and a $150 price target for MAR stock.
Emerson Electric (EMR) is a diversified industrial technology company, and analyst Andrew Obin says a recovering oil and gas industry is good news for Emerson's business. Oil and gas account for about 20% of Emerson's total revenue, and West Texas Intermediate crude oil prices are up roughly 50% in the past six months. Obin says Emerson's oil and gas end markets also benefit from inflationary pressures. The company's fourth-quarter data indicates its business may already be in the early stages of a v-shaped recovery, Obin says. Bank of America has a "buy" rating and a $100 price target for EMR stock.
Parker-Hannifin (PH) supplies hydraulics, motion and fluid control systems and other components to industrial customers. Obin says investors looking for a stock that will benefit from a rebound in U.S. industrial production should consider Parker-Hannafin a "best-in-class operator." Obin says the stock has performed well during previous early-cycle peaks in the Purchasing Managers' Index. He also says the company's sizable leverage makes it an inflation beneficiary. Parker-Hannafin pays a 1.1% dividend, and the stock trades at just 19.5 times forward earnings. Bank of America has a "buy" rating and a $385 price target for PH stock.
Analyst Ken Hoexter says railroads are an excellent U.S. industrial recovery play. They have more pricing power than trucking stocks because rail shipment is cheaper than trucking, and many of Union Pacific's (UNP) territories have limited competition. Union Pacific and other railroads are easily able to pass through the cost of higher fuel prices to customers via surcharges. Given rail volumes dropped more than 20% last spring, Hoexter says the industry is approaching extremely easy year-over-year comparisons in 2021. Bank of America has a "buy" rating and a $239 price target for UNP stock.
Broadcom (AVGO) shares have performed extremely well throughout the health crisis, gaining 147% in the past year. However, analyst Vivek Arya says the company will also be a big winner from the economic recovery in 2021. Arya says Broadcom has the most pricing power of any semiconductor stock, and a rebound in enterprise spending should be a tailwind in the near term. Also, Broadcom will continue to benefit from a global 5G wireless device upgrade cycle. Broadcom pays a sizable 3% dividend yield. Bank of America has a "buy" rating and a $550 price target for AVGO stock.
The oil and gas industry took a big hit in 2020, with WTI crude oil prices briefly dropping below $0 per barrel. However, oil prices have rebounded to pre-crisis levels, and inflationary pressures should provide support throughout 2021. Analyst Doug Leggate says higher oil prices correlate to higher free cash flow for Occidental Petroleum (OXY). That cash flow, along with proceeds from asset sales, can be used to pay down Occidental's $33 billion in debt, improving its risk profile. Inflation also helps ease Occidental's debt burden. Bank of America has a "buy" rating and a $32 price target for OXY stock.
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