Investing in home improvement suppliers and other companies that could benefit from increased consumer spending on “nesting” became the rage in 2020, notes Fidelity’s Jed Weiss, but he says the trend this year is just the opposite: spending on travel and experiences.
“This is why the stocks of many travel-related companies have gained strongly, but not certain aerospace firms I think could see increased customer spending later in the economic cycle,” says Weiss, portfolio manager of the Fidelity® International Growth Fund (FIGFX).
The COVID-19 pandemic hit aerospace companies particularly hard, Weiss says. Yet he notes that many used the difficult backdrop of 2020 to cut costs and improve their competitive positions so they would be in better financial shape once business returned.
Netherlands-based commercial aircraft manufacturer Airbus (EADSF) is one such company that made smart strategic moves amid the pandemic that Weiss says enabled Airbus to gain a competitive upper hand on its U.S. counterpart, Boeing, given Boeing’s struggles with its 737 Max aircraft. Weiss believes Airbus has a strong fleet of narrow-body aircraft options, including its highly regarded A321 and its smaller A220, acquired from Bombardier. He thinks Airbus could benefit from air traffic growth and the industry’s high technological barriers to entry.
Weiss also noted opportunities for Safran (SAFRF), a France-based maker of aircraft engines and aerospace systems. The company focuses on lowering carbon emissions and alternative-fuel technology to help meet the challenges associated with climate change. He cites Safran’s high-quality production standards, economies of scale, and exposure to increased traffic for narrow-body jets.
Lastly, increased air travel also could result in a shortage of pilots, which Weiss says could benefit CAE (CAE), a Canadian supplier of training simulation products and training solutions for civil aviation, defense, and health care markets. He says the company built on its competitive position during the pandemic, acquiring a pilot-training equipment competitor and expanding its training service capabilities even as others deemphasized or exited the business.
“It may take more time for the aerospace industry to fully recover, but I’m optimistic about the opportunities I see and the values I’ve found in this segment,” Weiss says.
Fidelity® International Growth Fund held securities mentioned in this article as of June 30. For specific fund information, including holdings, please click on the fund trading symbol above.
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