Morgan Stanley highlighted several companies that are prepared to withstand — and even benefit from —consumers’ shifting preferences this holiday season, as inflationary pressures dampen shoppers’ budgets this quarter. “We are underweight the consumer discretionary sector; the lower prices customers are looking for will weigh on company margins and earnings,” analyst Michael Wilson said in a Thursday note. According to Morgan Stanley’s proprietary monthly survey, most holiday shoppers are looking to see 30% discounts, on average, before they begin spending this holiday season. They’re also more likely to keep their holiday budgets roughly unchanged since last year, meaning retailers will be competing for a budget pool that is similarly sized to last year and will have to entice shoppers with more competitive prices. Those who plan to spend more attributed their spending levels to inflation-driven higher prices, while shoppers who plan to cut down on their spending pointed to a decrease in their income and plans to buy less expensive products. Consumers’ increasing preferences for services over goods is also a trend that is likely to remain relevant this holiday shopping, the firm said, pressuring goods-oriented industries while airlines remain the outlier as individuals continue to plan vacations. A strong holiday season should benefit the entire airline industry given the ongoing demand for air travel among consumers across income brackets, according to Morgan Stanley. The firm said it continues to prefer legacy airlines Delta Airlines , American Airlines and United Airlines , as well as low-cost carriers Southwest Airlines and Alaska Air Group , as they have more exposure to international and corporate travel compared to ultra-low cost carriers. Delta is the firm’s top pick in the airline space, analyst Ravi Shanker said, noting the company’s strong brand, premium customer brand and exposure to corporate and international tailwinds as well as its metered growth plans. Shares of the airline have gained 4.5% this year. The stock picked up steam after reporting strong third-quarter earnings last month, when Delta’s president also noted that “robust demand for travel on Delta is continuing into the December quarter” and should fuel total revenue growth of 9% to 12% compared with the same period a year ago. Although the firm is cautious on goods-oriented retailers, the spending slowdown will hit some retailers harder than those that have not planned…
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