Can the success of the reopening cost trade?
Analysts at Bank of America put the question in a letter on Monday in a note on the upgrade of Booking Holdings and the downgrade of Pinterest and Snap, citing changing tides on the interest rate front that could shrink the valuations of home equity stocks.
“This is not a call that Snap or Pinterest will not be able to appreciate,” the note reads. “It’s a call that stocks can be limited to the range and that we can reopen better ideas.”
Booking Holdings traded almost 2.5% on Monday, hitting its highest Wednesday record. Pinterest has dropped almost 1%. Snap lost less than half of 1%.
“We are … positive about reopening the trade, but I think that where we do not agree with the report is that we do not think it will be at the expense of some of these higher growth companies,” he said. Ari Wald, technical analyst, Ari Wald, told CNBC. “Trading Nation” on Monday.
Instead, it will likely come at the expense of higher-dividend-paying, lower-volatility sectors, leaving Pinterest and Snap as the long-term winners, he said.
As far as Booking Holdings is concerned, ‘over the past four years, it has mostly traded in a very wide range, apart from the collapse of Covid, between $ 1,600 and $ 2,200,’ Wald said.
“Now, a year after the important market bottom, entering this second year of the bull market, we are seeing more stocks start to break out, including Booking, which is breaking above the top end of the range,” he said. “It can be considered more positive than not, as long as the outbreak offers $ 2,200 support.”
Booking closed at $ 2,231.89 on Monday.
Challenges remain on both sides of the Bank of America call despite improving estimates around the reopening, Gina Sanchez, founder and CEO of Chantico Global, said in the same interview.
“About 20% of travel is business-related and 80% is leisure. Reservations have about the same percentage in their revenue,” she said. “If you assume that their entire revenue base is going to experience that kind of boost in 2021 and 2022, then Booking actually looks cheap. But if you assume that 20% of their revenue portfolio is going to drag on, then it can be reasonably valued.”
The fortunes of Pinterest and Snap are likely to depend on the investment landscape, says Sanchez, also chief marketing strategist at Lido Advisors.
“The bigger challenge there really comes with their profitability and whether they can really build profitability,” she said. “The fly in the ointment is that interest rates are rising. And as interest rates rise, investors really weigh valuations, and I think fundamental factors come into play.”
While Sanchez expected investors to ‘favor growth at a reasonable price rather than pure value’, high-growth businesses will still have to prove themselves, she said.
“There needs to be some growth, but I actually think profitability will be important, and that’s why I agree with Bank of America,” she said.
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