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Why Bank of America, Disney are stocks to watch in 2021

In this article:
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Yahoo Finance’s Zack Guzman and Akiko Fujita preview bank earnings and discuss stocks to watch with Philip Palumbo, Palumbo Wealth Management CEO and CIO.

Video Transcript

AKIKO FUJITA: I'm watching shares of BlackRock right now, that down nearly 4% on the back of their earnings announcement. BlackRock, of course kicking off what is a string of Big Bank earnings. JP Morgan, Citigroup, and Wells Fargo set to report their earnings or their results out tomorrow.

Let's bring in Philip Palumbo. He is Palumbo Wealth Management CEO and Chief Investment Officer. And Philip, let's get right to your stock pick here because you've got Bank of America there among the banks that you think is going to be a big beneficiary on the back of rates moving higher in the year. Walk me through your thesis and how you're looking at the sector as a whole right now.

PHILIP PALUMBO: Yeah, so we believe that monetary policy was big last year as well as this year, and fiscal policy is also going to be the story for this year. All of that in our view leads to higher inflation, which means that back end rates can go up further than we see today, somewhere around 1.5% to 2% on the 10-year by the end of this year.

When rates move higher and the spread of 2 and 10 years really widens out, banks tend to outperform. And that's why we're starting to see that move ahead of that trade. So Bank of America, any 100 basis points move on interest rates adds $10 billion to revenue for Bank of America.

So we believe they're a very well-positioned bank, they do a great job on the commercial and consumer side relative to the other banks. So overall, we're very bullish on Bank of America in where we feel interest rates are going by the end of this year.

ZACK GUZMAN: And Philip, too, I mean, when we talk about the earnings story, of course, we were discussing Delta's update earlier this morning. Stocks in the green, despite the fact that they missed earnings expectations. We're going to get some pretty important results here on another key theme of 2020, which was streaming gaining quite a bit of momentum here as Disney will report as well.

What are the expectations there as they continue to grapple with the increased competition on the streaming side, going toe-to-toe with Netflix and all the other major players? Of course, their parks business just completely overlooked when we think about the impact from the pandemic. Are you expecting that to continue?

PHILIP PALUMBO: I do. So when you think about the recovery, once the large part of our population gets inoculated from the vaccine, which is going to take time, for sure, but as we start to see herd immunity start to come within our population, you're going to see a comeback in the theme park, right? Which is about half of the revenue for Disney. Disney's story is really about the streaming and the success that they've had.

So we project that over the next two or three years, we can see the subscriber growth-- the total subscribers equivalent to where Netflix is. So when you think about adding that to the bottom line for Disney, plus the comeback in the theme parks, we believe Disney's really positioned well for the long term. And we've been adding now over, I would say over the last four to six months. So we feel really good about that.

In terms of the airlines, same story. We believe-- again, second half of this year, we believe there'll be pent-up demand. People, again, as we continue to get herd immunity, you'll see people back to flying and traveling, which all that's going to add to the airlines doing really well on the back half of this year. So we're bullish on the cyclicals as we move through the back half of this year.

AKIKO FUJITA: When you talk about activity resuming in the second half of the year, whether it is in travel or entertainment, leisure, like Disney, I mean, was it that based off of? Walk me through your thesis on how you think this is going to play out. Is it the expectation that, you know, by Memorial Day, for example, that most of the US will have gotten the vaccine?

How do you-- how do you break down that case there when you talk about the second half and the pent-up demand that's coming back?

PHILIP PALUMBO: So the vaccine and the roll out of vaccine really hasn't been obviously as smoothly as we would like to see. So here in New York, for example, speaking to clients and parents, you know, many people have actual appointments for vaccines really in the March period. So when you get the vaccine, the initial vaccine, you got to wait a couple weeks later for the next vaccine.

And then you got to wait about three weeks or four weeks thereafter. So by the time that everybody truly gets vaccinated, you know, throughout our country, it's gonna take more time than I think people think. So I think, in my view, in the summertime, in the fall is when we can get some type-- get back to some type of normalcy.

And as we know, markets are always looking forward, so that's why playing the airlines and the cyclicals now and over the next two or three months is why we think that makes sense.

ZACK GUZMAN: All right, Phillip Palumbo, Palumbo Wealth Management CEO and Chief Investment Officer, appreciate you joining us today to share all that with us.