Certain travel-related recovery plays could still be good investments heading into the fall of 2021 says Fidelity’s Shilpa Mehra, even as the delta variant of the coronavirus continues to spread—although she believes the stocks that may be top of mind aren’t necessarily the best values.
“Assuming the recovery from COVID-19 continues with hiccups along the way, I’ve found firms that could benefit from the return of air travel over the next 24 to 36 months that still trade at reasonable prices,” notes Mehra, portfolio manager of Fidelity® Trend Fund (FTRNX).
She is keeping a close eye on the delta variant but believes that despite the risk, many consumers in the U.S. remain eager to take to the skies for long-delayed getaways or to visit family and friends. She also expects an eventual uptick in cross-border travel that likely will play out over the coming two to three years.
To capitalize on this for the fund, Mehra points out that she has owned Southwest Airlines (LUV), as well as a few hotel and travel-booking companies, but notes that as a group many of these stocks rose rapidly in 2020 and early 2021, in anticipation that the travel industry would recover.
In comparison, she feels the relatively better valuations seem to be among the most capital-intensive businesses tied to travel.
One area Mehra likes is commercial aerospace—particularly the companies that supply new and replacement parts for aircraft. She already is seeing much busier flight schedules, which in turn could boost demand for replacement parts on older aircraft that sat largely idle during the pandemic.
She adds that some parts suppliers went out of business during the pandemic, which could potentially lead to higher industry pricing for the companies that endured.
As of August 31, the fund held outsized stakes in aerospace parts manufacturers Howmet Aerospace (HWM), HEICO (HEI), and TransDigm Group (TDG), as well as Ireland-headquartered AerCap Holdings (AER), the world’s largest aircraft leasing company. Mehra views each as a high-quality company, with considerable free cash flow and barriers to entry.
Another group of firms she thinks could see tangential benefits from increased travel are payment processors Mastercard (MA) and Euronet Worldwide (EEFT), holdings she feels could be beneficiaries of more credit card and ATM usage.
“We’re watching the delta variant very closely but haven’t seen anything to derail my belief that travel-related stocks could still see longer-term upside,” Mehra concludes.
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