As Biden tries to level the economic playing field, these stocks may benefit

Published Fri, Mar 12 202110:04 AM EST

As President Joe Biden shifts his focus from pandemic recovery to economic issues like income and wealth inequality, investors can play the change in agenda by snapping up a handful of retail and restaurant stocks. Bank of America Securities screened its universe of stocks for those that benefit whenever earnings are more evenly distributed across income groups. The bank's head of U.S. equity strategy Savita Subramanian noted that the Biden administration seems less focused on increasing equity prices and more focused on broadening out growth. "Policies in place to address the income inequality gap are likely to benefit discount retailers vs. luxury retailers, but could also impact margins for more labor intensive companies levered to minimum wage," she wrote in a note published earlier this week. "We also screen for companies that are doing better on gender and racial diversity, another key focus of the Biden administration," the strategist added. The bank's team concluded that, in general, off-price retailers and a handful of quick-service restaurant chains could outperform luxury brands over the next 12 months. Specifically, Bank of America screened for those retailers that would not suffer as much profit compression as a result of a minimum wage hike and tax hikes on the wealthiest Americans. Biden supported both policies during his presidential campaign. Atop their list was Yum Brands , the parent company of KFC, Pizza Hut and Taco Bell. Earlier in March, Yum Brands announced that it had bought Kvantum, a company that uses artificial intelligence for consumer insights and marketing performance analytics. The company said that the acquisition will help it improve marketing spending, giving it a leg up on fast-food rivals. Headquartered in Louisville, Kentucky, Yum has seen its stock pop about 34% over the last 12 months. Biden's forthcoming infrastructure and tax plans are expected to prioritize lower- and middle-income workers while tapping the nation's wealthiest for added tax revenues. The president and his chief economic advisors, including Treasury Secretary Janet Yellen, have argued that a more even distribution of income in the U.S. is not only a moral obligation but would actually lead to larger growth in the long term . Biden signed his $1.9 trillion Covid relief package on Thursday, his first landmark piece of legislation, to help further stabilize the country's economy as it emerges from the coronavirus pandemic. "The current administration is focused on reinvigorating the economy and addressing social inequity rather than bolstering asset returns," Subramanian wrote. "We recommend Discount over Luxury Retailers, supported by the potential for [minimum] wage hikes for low-income workers and tax hikes for wealthy individuals." The bank also recommended Target and Walmart as two discount retailers that could see their shares outperform over the next year between fiscal stimulus and equalization efforts. The brokerage has a buy rating on both stocks. Target's equity, in particular, has seen strong performance over the last six months with a rise of about 21%, outperforming both the Dow Jones Industrial Average and the S & P 500. The company announced earlier this week that it is launching a grocery brand, a business with little profit potential but one that often drives foot traffic to store locations.

U.S. President Joe Biden speaks about his administration's plans to respond to the economic crisis during a coronavirus disease (COVID-19) response event in the State Dining Room at the White House in Washington, January 22, 2021.

Jonathan Ernst | Reuters

Bank of America Securities screened its universe of stocks for those that benefit whenever earnings are more evenly distributed across income groups.

The bank's head of U.S. equity strategy Savita Subramanian noted that the Biden administration seems less focused on increasing equity prices and more focused on broadening out growth.

"Policies in place to address the income inequality gap are likely to benefit discount retailers vs. luxury retailers, but could also impact margins for more labor intensive companies levered to minimum wage," she wrote in a note published earlier this week.

"We also screen for companies that are doing better on gender and racial diversity, another key focus of the Biden administration," the strategist added.