BofA-Merrill Lynch upgrades Travel&Leisure stocks
Strategists at Bank of America-Merrill Lynch re-shuffled their sector stock allocations after the strong performance put in by Industrial Goods & Services and as the risks surrounding Travel&Leisure receded.
The broker said it was retaining its pro-cyclical bias - given its base case for a continued macroeconomic recovery in the backhalf of 2016 and supportive relative valuations - but trimmed its 'overweight' weighting for the former of those two sectors from 300 basis points to 100, while upgrading the latter from an 'underweight' to 'marketweight'.
Regarding Industrial Goods & Services, BofA´s decision was motivated by the sharp increase in 'positioning' observed in its last fund managers´ survey and a stalling in manufacturing sector momentum.
Travel&Leisure on the other hand was no longer overbought and the risks from the rally in oil prices and Brexit had receded.
Indeed, "earnings and cash flow valuations appear attractive, leaving a much better risk-reward for the sector," the broker said.
Balancing out their sector allocation, the strategists said they were also 'overweight' financials but 'underweight' defensives.