Pacific Investment Management Co. is wagering on sectors from chemicals to airlines with ties to regions with the best outlooks for growth as Europe’s debt crisis and the U.S. fiscal cliff of higher taxes and spending reductions threaten to derail the global recovery.
LyondellBasell Industries NV, the second-largest U.S. producer of ethylene, and Weyerhaeuser Co., a U.S. lumber producer and home builder, are among companies that should “hold up well” if the world economy slows, Mark Kiesel, global head of corporate bond portfolios at the manager of the world’s biggest bond fund, wrote today on the firm’s website in a report titled, “Diamonds in the Rough.” Kiesel also recommended the debt of companies in the lodging, gaming and automobile sectors.
“A lot of the opportunities are in emerging markets and in the U.S.,” Kiesel said in a telephone interview today.
The outlook for the global economy remains uncertain, Kiesel wrote. The U.S. is facing potential fiscal cutbacks, which would reduce spending by $607 billion in 2013. Spanish 10-year bond yields rose to a euro-era record 7.751 percent July 25 on concern that European leaders won’t be able to contain the region’s debt crisis.
Pipelines, near emerging oil-and-gas shale regions, are benefiting from an increase in U.S. crude oil production. Increased demand and more revenue per passenger have helped airlines. And the hotel industry has seen an increase in all types of rooms, not just the high-end accommodations that led an initial recovery, he said.
A smaller supply of cars and the increasing age of current vehicles on the road should help some U.S. auto finance companies, Kiesel wrote. Companies that refine chemicals such as ethane may benefit from low natural gas liquid prices.
Las Vegas Sands Corp., which now generates about 90 percent of its earnings before interest, taxes, depreciation and amortization costs in Asia, stands to benefit from rapid gaming-sector growth in that region, as does Wynn Resorts Ltd., Kiesel said.
“The profitability in Macau is pretty unbelievable,” Kiesel said in the interview. “Vegas no longer matters a great deal for these companies. What’s really driving the growth is emerging markets.”