The share price of Brambles Limited (ASX: BXB) surged higher on strong volume on Monday after Credit Suisse upgraded the stock following the global logistics company's investor day.
It's about time the company delivered better performance given its leverage to the global reflation trade where economic activity around the world, particularly the US, is picking up sharply.
Brambles' share price may be up 9.5% over the past year, better than the 2.8% increase in the S&P/ASX 200 (Index:^AXJO) (ASX:XJO), but it lags other ASX stocks leveraged to US economic growth.
Building supplies company Boral Limited (ASX: BLD) is up 23% over the same period while steel products maker BlueScope Steel Limited (ASX: BSL) is up 18%.
This could be Brambles' turn to shine with the stock jumping 2.4% yesterday to $9.90 as Credit Suisse thinks the quality of the current management team and artificial intelligence (AI) will drive investors back into the stock after it posted a lacklustre profit result last month.
The company appears to have a detailed plan in place to turnaround its struggling US business, improve cash conversion, control rising costs and use technology to leverage its network advantage.
"We are impressed with the management team in place, and we are more confident that it can deliver significant improvement in the business over the next two to three years," said Credit Suisse.
"Brambles tech investment, BXB Digital, is already delivering value. Pallet tracking technology illuminates where pallets are getting lost, damaged and used without payment."
Perhaps more importantly, BXB Digital allows Brambles to add value to customers by finding opportunities to reduce customers' transport and logistics costs. This makes customers stickier and strengthens Brambles market position, added the broker.
Brambles will also be a beneficiary from a rising US dollar compared to the Aussie. This is important because I think there is downside risks to the Australian currency now that US president Donald Trump has picked Larry Kudlow as his new top economic advisor.
Mr Kudlow is a believer in a strong US dollar and this may spur the White House to implement policies that will be supportive of a higher greenback.
There are other stocks that will benefit from a resurging US dollar, including medical device makers like ResMed Inc. (CHESS) (ASX: RMD) and Cochlear Limited (ASX: COH) as this will inflate earnings when translated back into the Australian currency, but none are trading on as attractive valuations as Brambles – assuming management can really show an earnings and margin improvement in the current half.
Credit Suisse upgraded Brambles to "outperform" from "neutral" with a price target of $10.40 a share.
Looking for other stocks that are well placed to outperform in 2018? You will want to read the latest report from the experts at the Motley Fool as they are particularly bullish about the prospects of one sector.
Click on the link below to get your free copy of this report and to find out what stocks are best placed to ride this investment thematic.
