Although US inflation accelerated less than expected yesterday, many strategists are expecting a surge in consumer prices in the coming months. Among these also the Equita SIM experts who today compiled a list of 10 stocks that could benefit the most from a reflation scenario.
“We believe that we are close to a historic turning point for inflation and interest rates, with a level of inflation in Europe that will be structurally higher than in the recent past, driven by the economic recovery, but with a level of rates that it will remain under control ”, argues the Milanese sim. Thus the ‘reflation trade’ – that is, higher growth coupled with structurally higher inflation – could continue and will continue to drive equity markets.
There are three distinct reasons that lead Equita to this belief:
1) We expect theinflation increases in the coming years, starting with the US, but which will remain at an acceptable level;
2) We expect the central banks continue to monitor interest rates;
3) We remain optimistic about the recovery.
The most favored are financial and cyclical
The sectors to be favored are those that can benefit from a rise in inflation and steepening of the interest rate curve (i.e. an increase in slope) such as financial stocks. Equita also indicates a possible positive performance of cyclical stocks and those linked to industrial commodities (which will benefit from fiscal stimuli, ultra-expansive monetary policies and Recovery Funds) with very solid business models and with pricing power (i.e. companies able to pass the increases in the cost of raw materials on the final sale price – as opposed to the pressure on margins expected in the most competitive sectors).
Underperformance is expected from Equita for very long duration assets (such as defensive and tech stocks, characterized by very high valuations and well above the historical average – therefore exposed to derating in a context of `reflation`).
The 10 investment ideas with BUY judgment that, according to Equita, can benefit from higher inflation or, at least, that can better deal with it by benefiting from economic growth are: Intesa SanPaolo, Banca Mediolanum, ENI, Tenaris, CNH Industrial, Unipol, Technogym, Interpump, Danieli Sav., Pirelli.
Among these 10, today Equita bought the Tenaris stock with a target price that went from 9 to 11 euros. “We expect a re-rating of the stock driven by: i) recovery in demand
of oil services internationally thanks to the recovery of global oil demand towards pre-Covid levels with the increase in vaccinations during 2021, ii) reduction in supply caused by strict discipline on the E&P investment front in recent years (l `O&G industry has heavily under-invested in the last 5-6 years)”, remarks the Milanese sim that denotes how the rise in the price of oil, ac $ 60 / bbl, improves visibility on the sector’s recovery trend and consequently on profits for the next few years.