East meets West: top banks say these are stocks to watch
Goldman Sachs and Morgan Stanley have produced fresh reports on stocks they think are about to do well.
Goldman’s focus is mainly on European stocks with an international reach. Morgan Stanley, on the other hand, has been appraising stocks that could highly benefit from stronger US-China ties.
Top banks’ stocks to watch
Goldman eyeballs these equities
CNBC reports Goldman has identified a number of stocks as poised to outperform their pre-pandemic earnings while Europe’s post-Covid reopening continues.
All of the large caps listed on Goldman’s Reopening Beneficiaries list have been rated as buys by the bank’s analysts with major potential upsides over their 12-month share targets.
Goldman has been tracking various sectors set to soar once economies are fully reopened, using Europe as a guinea pig with the bank pouring over hotel booking, flight, and restaurant booking data, as well as Covid-19 hospitalisation levels and vaccination uptake.
Starting with oil, three supermajors have been identified as buys, all with significant upsides. Currently, oil prices are soaring, with key benchmark contracts trading for levels not seen for at least two years. As such, the below stocks are at the top of Goldman’s buy list, beating their 12-month price targets:
- BP – 45% estimated upside
- ENI – 27% estimated upside
- Total – 23% estimated upside
The aviation industry is clear for take-off too. Again, one major stock could be looking to fly high with a 45% topside. As we’ve touched on in the past, stocks related to international and domestic air travel may be big winners once the world opens up. That includes airlines themselves but also associated infrastructure like engine suppliers and airports.
Goldman Sachs identifies the following equities with high potential:
- Rolls Royce – 45% estimated upside
- Flughafen Zurich – 27% estimated upside
- EasyJet – 18% estimated upside
Looking to retail, Goldman has several firms in different subsectors on its watchlist. According to the bank’s analysis, Swiss conglomerate Richemont, whose portfolio covers Cartier, Montblanc, and a host of jewellery and watchmakers, has high potential, but it may be outstripped by retail brands:
- Swatch Group – 19% estimated upside
- Adidas – 16% estimated upside
- Richemont – 13% estimated upside
All of the above rests on the successful reopening of global and European economies, however. Vaccine rollout has been largely successful in key economies like the US, European Union and the UK. Covid variants, however, have led to some delays in the full lifting of restrictions. We’re not out of the woods yet, but the tree density is dropping off. Specks of light are seeping through the undergrowth.
Morgan Stanley looks eastward for stock picks
While Goldman has an internationally-facing European focus, Morgan Stanley heads to China to look at some equities that could be potential buys.
Morgan’s analysis, however, is all based on closer US-China relations. We all remember the trade wars of President Trump’s tenure. Morgan is betting on closer relations between Beijing and the Biden White House during the 46th US president’s tenure.
In one of the bank’s China-related portfolio, it has listed 30 Chinese firms that are dependent on the US market for solid chunks of their revenue.
Many have strong track records too, in terms of share performance. Morgan Stanley analysts reported earlier in June that the equities outperform the MSCI China index by an average of 206 points when things are good between the US and China.
It should be pointed out at this juncture that Joe Biden has maintained a tough stance on China. However, instead of pursuing sanctions, his administration is tacking a different tack by working more closely with US allies in the region, rather than instigating a tit-for-tat trade spat.
That said, if the frost relations thaw, then Morgan Stanley suggests the below could be poised to make big gains.
Universal Scientific International (USI)
USI is a subsidiary of US-listed, Taiwan-based ASE Technology. The firm manufactures electrical components used by other firms and recently inked a substantial deal with a European manufacturing giant in 2020.
Total profit grew to 351.5 million yuan ($54.9 million) in the first three months of this year, up 65% from 212.5 million yuan in the first quarter of 2020.
70% of USI’s revenue is sourced from the US market.
Futu is, along with Robinhood, part of the new breed of millennial-aimed investment apps. It is one of the two main apps young Chinese investors use to trade stocks listed overseas.
The company has ambitious growth plans, identifying Singapore and the US as its next target regions for userbase growth. Futu is also applying for licenses that would allow it to offer cryptocurrency trading in those two nations – something of big interest to the current crop of younger traders.
Morgan Stanley estimates 62% of Futu’s revenues comes from the US already, but it expects a large portion of 700,000 new customers to come from there too.
WuXi’s business is the research, development and manufacturing of services for the pharmaceutical, biotech and medical device industries. It is currently focussing on beefing up its gene therapy and drug development industries.
55% of WuXi’s revenues, Morgan Stanley says, is generated by its business in the US.
All of the above stocks have been listed as overweight by Morgan Stanley, indicating they expect the stocks to perform better in the future. This does all depend on how US-China relations develop under Biden.
Of course, remember all investing and trading comes with the risk of capital loss. Do your due diligence and research before committing any money and only invest or trade if you are comfortable taking any potential losses.