Bank of America's Europe strategists have named 13 stocks they expects to benefit from the world's ongoing supply chain crisis.
Global supply chains have been severely disrupted over recent months by shortages of workers, power, and raw materials. These have led to severe blockages and production issues around the world which have already hit global growth rates. Now, some experts believe the situation could get even worse.
In a recent note, Bank of America equity strategists and economists identified the sectors they think could benefit from the situation, and those that are most vulnerable.
Stocks set to benefit
The bank's Europe equity strategists, led by Andreas Bruckner, and economists, led by Evelyn Herrmann, argued that high demand is helping those companies that are crucial for supply networks. It is also giving a boost to the producers of goods and components that are in short supply, such as semiconductors.
"Transport companies are set to benefit from tight freight markets, which have lifted spot rates significantly above contract rates, with customers likely to accept large increases in upcoming negotiations (Deutsche Post DHL, Maersk, DSV)," they wrote in a note dated Oct. 19.
"The fact that semiconductor shortages are disrupting large industries like autos, where semis make up a small percentage of the total input bill, means semis companies are in a strong position to raise prices (ASML, Soitec, Infineon, ASMI)."
The energy sector is also set to benefit from tightening supply and demand balances, they added, "resulting in spiking spot prices for oil and gas as well as a gradual shift up-in forward curves (Total Energies, Equinor)."
Finally they named a number of commodity stocks with potential upside in the face of supply issues. "Supply across the commodity complex is reduced as a result of China's energy shortages, leading to tight markets for coal, aluminium and steel and, hence, pricing power for metal and mining companies focused on these areas (Glencore, Norsk Hydro, ArcelorMittal, Voestalpine)," Bruckner and team added.
However, although some companies could benefit, the experts noted that many more could be negatively affected by the disruptions to global production and supply networks.
For example, they noted that clothing retailers are likely to be hit by delays in product deliveries, high freight costs and rising raw material prices. They named H&M and ABF (Associated British Foods, which owns Primark) as likely to be affected by such challenges.
Meanwhile, they noted that "online retailers are vulnerable because of their limited ability to pass on increased costs resulting from higher raw material prices and labour inflation (Zalando)." They added that factory closures in Vietnam and rising input costs could also hit sportswear companies such as Adidas.
Meanwhile, capital goods companies — which make machinery, vehicles and tools — should also be on high alert, Bruckner added.
"Supply-chain disruptions and rising commodity prices could result in near-term headwinds for capital goods companies which use a lot of raw materials or are particularly sensitive to changes in energy costs (Electrolux, Bodycote), with high energy costs also a headwind for energy-intensive chemicals businesses (Yara)," they wrote.
The BofA strategists are sceptical of a strong bounce-back in economic growth once supply-chain issues are resolved, warning that supply bottlenecks in manufacturing "might be masking demand weakness, especially against the backdrop of slowing Chinese growth, while rising energy prices are set to squeeze consumers' purchasing power and corporate profit margins."
They also highlighted that as European Central Bank policymakers are increasingly focused on the upside risks to inflation, this "could lead to a premature tightening of monetary policy," which in turn could cause "unresolved supply-chain issues and power shortages [that] contribute to the growing downside risks to the macro cycle."
The strategists concluded that the macro backdrop for equities had shifted from a "goldilocks" situation (of stable growth) to an "anti-goldilocks" position of slowing growth and rising real bond yields.
As such, they turned negative on European equities earlier this month, with their macro assumptions implying 10% downside for the Stoxx 600 by year-end.