As the growth and tech stocks that drove the equity rally during the pandemic rapidly cool off, investors are eager to put their money to work elsewhere. Increasingly, that destination appears to be “reopening stocks,” companies poised to benefit from widespread vaccination and an end to lockdowns.
Expectations are high for a big economic rebound in the travel and leisure space, and an increasing emphasis on infrastructure development (plus a red-hot housing market) is powering a rally in industrials and materials.
Reopening Stocks for Your Watch List
You can easily see the renewed optimism with a glance at the Invesco Dynamic Leisure and Entertainment ETF (PEJ). This ETF, which tracks an index of 30 U.S. stocks from the leisure and entertainment industries, is up nearly 20% year-to-date (and was up over 40% prior to the Archegos hedge fund fiasco which caused a massive sell off in ViacomCBS (VIAC), one of the fund’s top holdings).
Shares of restaurant supplier Sysco (SYY), which comprises 4.5% of fund assets, struggled to gain much upside traction throughout 2020, due to restaurant closures. That’s turned around recently; Sysco is up over 7% year to date.
Travel Stocks on the Move Again
Other top holdings, such as travel services provider Booking Holdings (BKNG), struggled amid travel restrictions. After two failed rally attempts in 2020, Booking has notched a year-to-date return of 10%.
Another travel booking firm, TripAdvisor (TRIP), has been on a tear in recent weeks.
The company’s business went nowhere in 2020, and it reported a yearly loss of $1.27 per share. Wall Street analysts expect that to turn around this year, with earnings of $0.07 per share.
Although many stocks began the long, slow process of rebounding last spring, TripAdvisor stock only began rallying in November. The stock is working on its fifth month in a row of upside trade, with some big monthly advances.
In February, for example, TripAdvisor was up a whopping 60.2%, to 49 a share.Trading volume has been above average as the stock races higher. That’s a good sign of conviction among institutional investors.
Optimism Abounds for Materials and Industrial Stocks
While stocks of consumer-facing companies poised for an economic rebound are showing strength, the not-so-glamorous sectors of industrials and materials are also rotating into leadership.
With optimism on the rise over an improving economy, institutional investors are taking a fresh look at prospects for industrial production. The materials sector, of course, is relevant to that viewpoint because its components produce the inputs used in production.
Meanwhile, the new $1.9 trillion economic stimulus package will give Americans more money to put back into the economy.
In addition, materials and industrials may have more room to run, as the Biden administration hopes Congress will pass an even larger spending bill later this year. As of now, the intention is to wrap trillions of dollars in infrastructure spending into that bill.
That may benefit stocks of companies that would have a role in new infrastructure projects.
For example, Caterpillar (CAT) just crawled through 2020. The company remained profitable, but earnings growth decelerated. Analysts are eyeing earnings per share of $8.20 this year, which would mark a 38% year-over-year increase. For 2022, Wall Street pegged earnings expectations at $10.67 per share, a 30% increase. Both those forecasts were raised recently.
Not coincidentally, Caterpillar shares are trading near all-time highs.
Meanwhile, fellow machinery maker Terex (TEX) is trading at its best levels since 2018. The company reported losses in the first and second quarters of 2020, a reflection of the challenging business environment. However, Terex plowed through the bad quarters, ending the year with earnings of $0.13 per share.
Analysts expect that to grow an almost astonishing 1,600% this year, to $2.26 per share.
These are just a few of the top reopening stocks to keep on your watch list as America’s economy gets back in gear following a nightmare year. All of them are off to strong starts in 2021, and could soar much higher by year’s end.
Have you been investing in anticipation of a travel boom as lockdowns end?