Looking for the next recovery plays

It’s time to look beyond travel and leisure stocks for the next recovery plays, says Matt Fruhan.

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At the midpoint of 2021, many travel- and leisure-related stocks have more than recovered from their pre-pandemic prices, whereas many aerospace companies and airlines have yet to do so, according to Fidelity’s Matt Fruhan.

“I think some of these companies exposed to air travel could be poised for a more substantial comeback now that customers seem to be taking to the skies again,” says Fruhan, who manages Fidelity® Large Cap Stock Fund (FLCSX).

The fund normally invests at least 80% of assets in common stocks of companies with a large market capitalization in either the growth or value categories—and sometime both.

Airline executives and many analysts hope air travel will return to 2019 levels in coming years, Fruhan says, but he thinks this could happen as soon as 2022, which may lead to better-than-expected industry earnings and cash flows for certain industry players.

Fruhan notes that he’s a former airline and aerospace-stock analyst and that he’s seen demand for air travel recover rapidly, usually within one year once safety issues are addressed. With the COVID-19 vaccine success, he says this pattern appears to be occurring again.

Also, he contends that some investors remain reluctant to own capital-intensive aircraft manufacturers, which likely will be slower to recover because of the lag between travel spending and orders for large aircraft.

“Yet I think some of these companies could see an influx of aircraft orders as soon as we start to see full flights and parked planes return to service,” Fruhan says. “While doubt persists, I think there are bargain-priced stocks in this industry.”

As of May 31, the fund owned shares of aircraft manufacturers Boeing (BA) and Airbus (EADSF), as well as a large position in industrial conglomerate General Electric (GE), whose jet-engine business has been depressed. He also noted holdings in Spain’s Amadeus IT Group (AMADF), which provides advanced technology solutions for the travel and tourism industry.

Fidelity® Large Cap Stock Fund held securities mentioned in this article as of its most recent holdings disclosure. For specific fund information, including holdings, please click on the fund trading symbol above.

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