Consumers spending stimulus checks will boost airlines, cannabis and these other stocks, Cowen says

Published Fri, Mar 26 20211:56 PM EDT

An influx of cash to many low-to-moderate-income households as part of the $1.9 trillion Covid-19 relief package is expected to lift several consumer stocks over the next few months, according to Cowen. The brokerage believes that stimulus checks and a dramatic expansion of the child tax credit will flow through the U.S. economy and fuel business at a wide range of industries from airlines and hospitality to apparel retail and cannabis. "We see evidence of increased consumer spending, namely driven by incremental $1,400 stimulus checks," a team of Cowen analysts wrote Friday. "Across consumer industries, these indicators of pent-up demand should translate into near-term spending (particularly among households most impacted by COVID-19) and providing another leg of growth." Cowen broke down which industries it thinks will see the most upside from President Joe Biden's coronavirus stimulus and the stocks it likes the most within each sector. Airlines A popular reopening trade, airline stocks consistently rank among Wall Street's favorites for 2021. Analyst Helane Becker is no exception and believes many Americans will opt to use their economic impacts payments to travel. "The US government has been very supportive of both its citizens and of the airlines, and as a result, we believe people have some money with which to travel, and they are," she wrote. Becker wrote that a handful of airlines that benefit from strong domestic leisure traffic should be set an especially strong 2021. She highlighted Spirit, Allegiant, Southwest, Alaska Air and JetBlue, all of which are rated outperform at Cowen. "We are increasingly optimistic that the June quarter will wind up being better than our initial forecasts and are expecting airlines to reach cash breakeven in the summer," the analyst wrote. "In our view, once we get to that level, we believe profitability can be achieved in the second half of 2021." Cannabis Americans' uptake of marijuana is "evident," according to cannabis analyst Vivian Azer. Azer, one of Wall Street's first analysts to begin covering the cannabis sector years ago, wrote that prior stimulus checks led to increased pot sales and that this round should prove no different. She noted that following the passage of the first major stimulus in March 2020, marijuana sales accelerated over the subsequent three weeks in most markets tracked by LeafLink, a wholesale marketplace for cannabis. "Combined with cannabis' designation as essential services during COVID-19, this performance was a precursor for strong growth in 2020, as we estimate the total state cannabis revenues grew 58%" year over year, she wrote. "As such, we remain bullish on further development in the U.S. market." Azer said she continues to recommend outperform-rated Green Thumb Industries and Curaleaf. Apparel Tapestry, Boot Barn and American Eagle Outfitters are the three best retailers to capture consumer spending on apparel, according to analyst Oliver Chen. "We expect the latest round of consumer stimulus, which combined with a high consumer savings rate and rising Clothing And Footwear [personal consumption expenditures] will disproportionately benefit discretionary retailers," he wrote. Cowen's proprietary consumer data shows that about 85% of Tapestry consumers are expected to benefit from stimulus payments. The parent company of Coach, Kate Spade and Stuart Weitzman should enjoy top-line upside as customers spend online. American Eagle, too, should see some benefit as a result of the stimulus "given Aerie and AE's value-oriented offerings and secular brand momentum among Gen Z & Millennials," Chen wrote. Hospitality Much like the airline industry, hotels and other hospitality businesses are expected to see a strong recovery this year. Cowen's Kevin Kopelman said he's optimistic thanks to the relatively quick Covid-19 vaccine in the U.S. and expectations for further declines in infection rates. He cited a recent Cowen survey that suggested that Americans may be comfortable staying at hotels as soon late summer. "On average respondents indicated that it would take them 6.2 months to feel comfortable staying in a hotel again in February, down again from 6.4 months in January and down sharply from 7.0 months reported in December," he wrote. While Kopelman did not offer any specific stock recommendations, he did acknowledge the potential for a U.S. "summer travel boom" given pent-up demand following travel restrictions and quarantines. — CNBC's Michael Bloom contributed reporting.

A customer holds an American Eagle Outfitters Inc. shopping bag while waiting in line to make a transaction at a store in San Francisco, California, U.S., on Wednesday, March 6, 2013.

Bloomberg

The brokerage believes that stimulus checks and a dramatic expansion of the child tax credit will flow through the U.S. economy and fuel business at a wide range of industries from airlines and hospitality to apparel retail and cannabis.

"We see evidence of increased consumer spending, namely driven by incremental $1,400 stimulus checks," a team of Cowen analysts wrote Friday. "Across consumer industries, these indicators of pent-up demand should translate into near-term spending (particularly among households most impacted by COVID-19) and providing another leg of growth."