BofA picks stocks that could benefit from 10 scarcity themes (NASDAQ:AAPL)

BofA picks stocks that could benefit from 10 scarcity themes (NASDAQ:AAPL)

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Bank of America screened for stocks that could benefit from 10 scarcity themes, ranging from freshwater to increasing healthcare demands from an aging population.

All the stocks have Buy ratings from their respective analysts.

“We believe the current global resource supply vs. demand imbalance is underpinned by structural scarcity and will only get worse,” BofA Research wrote in a note to clients last week. “We believe that ‘scarcity tech,’ the circular economy and natural capital are some of the solutions at their tipping points that can help solve the problem.”

Starting with picks for time:

Apple (NASDAQ:AAPL). Its devices and services continue to be a primary solution for entertainment and productivity tasks. BofA expects this trend to grow as more products/services launch.

Microsoft (NASDAQ:MSFT). 8-10% of its revenues come from video gaming directly, with Xbox being one of the largest brands. Strong secular tailwinds for the gaming space. The potential merger with Activision Blizzard (NASDAQ:ATVI) would add ~$9B of gaming revenue for Microsoft.

Walt Disney (NYSE:DIS). Asset base is built on consumer’s willingness to put time toward the company’s content. Without it, there would be no one to pay for their streaming service, for example.

Meta Platforms (NASDAQ:FB). The owner of Facebook and Instagram is poised for increasing mobile usage, as time spent on mobile devices accelerates. More than 98% of Meta’s revenues account for digital advertising.

For the water theme:

Essential Utilities (NYSE:WTRG). Second largest publicly traded water utility and offers exposure to Environmental, Social, and Governance space.

Picks for biodiversity and air themes:

Weyerhaeuser (NYSE:WY). Second largest producer of lumber in North America, benefiting from demand/supply imbalance. ESG could come into play over time, including carbon-credit markets.

Carrier Global (NYSE:CARR). Offers a range of products that drive carbon footprint reduction, such as heat pumps and variable refrigerant flow systems. Improving leverage, margins, and free cash flow conversion post Chubb divestiture.

Rare earths/metals picks are:

MP Materials (NYSE:MP). Produces an estimated 16% of global rare earth concentrate supply, with plans to ramp up separation capability this year. Certain rare earth metals are scarce as supply struggles to keep up with surging demand.

Sigma Lithium (NASDAQ:SGML). “Lithium material pure-play” in the face of a tight supply backdrop in the global lithium battery space.

Farming picks include:

Mosaic (NYSE:MOS). Pure-play phosphate and potash producer. Demand growth for both nutrients is expected to remain near 2% per year, driven by population growth and increased protein consumption in developing countries. Sees 2022 profitability at record levels.

Zoetis (NYSE:ZTS). 40% of revenues are exposed to livestock, holding top industry positions in cattle, pigs and fish. Similarly, half of Elanco Animal Health’s (NYSE:ELAN) revenues are exposed to livestock.

Waste disposal picks:

Origin Materials (NASDAQ:ORGN). Pure-play carbon negative company. The company converts carbon found in biomass into useful materials. Demand for plastics is growing rapidly, anticipating production to double by 2027 vs. 2017 levels and nearly quadruple by 2050.

Waste Connections (NYSE:WCN). May benefit from landfill scarcity. Landfill gas to renewable sales is 1-2% of total revenue. Recycling contributes 5-10% of sales and is a rising tailwind following its recycling infrastructure investments.

Processing power theme picks are:

ASML (NASDAQ:ASML). The only global supplier of extreme ultraviolet equipment. As chip features become smaller, more complex lithography equipment is required.

KLA (NASDAQ:KLAC). 90% of sales are exposed to scarcity across its semiconductor process control equipment.

GlobalFoundries (NASDAQ:GFS). Poised to benefit from trailing edge semiconductor shortages and global semi manufacturing re-shoring efforts. 90% of sales are tied to wafer related revenue.

Health and wellness picks consist of:

AMN Healthcare (NYSE:AMN). Pure play on temporary health care staffing. Labor shortages in the industry is a long-term tailwind.

Teladoc (NYSE:TDOC). Promotes “virtual first” access to primary care which can help reduce costs. Operating in three segments: Virtual medical care, mental health care and chronic care. Over 500M paid members.

Xponential Fitness (NYSE:XPOF). “Fitness clubs could be solution providers for the wellness scarcity issue by enabling healthier and more active lifestyles,” BofA analyst Alexander Perry noted.

Picks for skills and education include:

Udemy (NASDAQ:UDMY). Global community of more than 46M learners and 9.5K business customers. Market opportunity of $220B for online education. According to BofA’s proprietary survey, 77% of respondents have taken an online course or plan to take one in the future.

Duolingo (NASDAQ:DUOL). Accelerating shift to digital. Online language learning share of the total market is expected to more than double from ~20% in 2019 to ~41% in 2025. Total addressable market of over $160B.

Chegg (NYSE:CHGG). Strong international momentum. Consecutive subscriber growth since 2015. 94% of BofA’s survey respondents said Chegg helped them get better grades.

Youth picks are composed of:

Progyny (NASDAQ:PGNY). 100% of revenues come from providing access to a care advocate, a high quality network and related prescriptions. U.S. birth rate since 2007 is down more than 1%.

Check out Seeking Alpha’s screen for top rated stocks here.

Looking at sentiment, investor confidence rebounded in February as COVID-19 cases fall.

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