BofA equity strategist Savita Subramanian thinks the reconstruction effort following Hurricane Sandy will combine with positive macroeconomic trends in China to light a fire under certain stocks.
In a note to clients titled, Post-Hurricane Sandy: stocks that could surge, Subramanian writes:
US stocks that could benefit from an improving outlook in China may closely intersect those helped by the aftermath of Hurricane Sandy. For example, consumer durables that need to be replaced in the US could also see heightened demand in China as the consumer strengthens, and raw materials might be lifted by increasing demand in China and as well as the reconstruction and repair efforts in the US infrastructure and housing sectors.
However, Subramanian also writes that "the theme may be best implemented through specific stocks within these sectors" – we highlight those picks here.
Industry: Road & Rail
Stocks:
1. Swift Transportation Co (SWFT)
2. Knight Transportation (KNX)
3. J.B. Hunt Transport Services (JBHT)
4. Union Pacific Corporation (UNP)
5. Kansas City Southern (KSU)
Rationale: Rebuilding cycles usually give trucking and rail companies a boost as demand for raw materials and corresponding freight needs increase.
Source: BofA Merrill Lynch
Industry: Paper & Packaging
Stocks:
6. Weyerhaeuser Co (WY)
7. Louisiana Pacific Corp (LPX)
Rationale: Positive housing trends have already spurred lumber demand, and post-hurricane reconstruction could provide an additional tailwind to lumber stocks.
Source: BofA Merrill Lynch
Industry: Restaurants
Stocks:
8. Yum! Brands (YUM)
Rationale: Restaurants "tend to open faster than consumers regain power" and can achieve additional sales that way. Furthermore, increased construction activity could spur demand for more fast food breakfast and lunch orders.
Source: BofA Merrill Lynch
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