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Morgan Stanley thinks this ASX 200 stock is about to take off

Brendon Lau
ASX travel shares taking off

Consumer-facing stocks have found new friends after the federal election result on the weekend but there’s one that’s better placed to outperform over the next month or two, according to a top broker.

This prediction may be what’s pushing the Flight Centre Travel Group Ltd (ASX: FLT) share price 0.2% higher in after lunch trade to $41.12 after the stock spent most of the morning in the red.

In contrast, the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index is flat and the Webjet Limited (ASX: WEB) share price continues to nosedive with a further 3% drop to $15.03.

Why Flight Centre could soar higher

There’s more runway for Flight Centre to take off if Morgan Stanley is on the money. The broker believes there is a more than 80% chance that the Flight Centre share price will outrun the market over the next 60 days.

“We think that a major driver of soft Australian leisure trading was due to concerns that a Labor government would abolish refunds of franking credits,” said Morgan Stanley.

“Given FLT’s customer base skews older, this potential policy change – according to our channel checks – caused considerable uncertainty which we think contributed to the April 26 profit warning. The surprise re-election of the Coalition government should drive stronger trading conditions ahead, in our view.”

Morgan Stanley has an “overweight” recommendation on Flight Centre with a $46 per share price target.

Embattled shareholders will be hoping Morgan Stanley is right as the stock has plunged close to 40% over the past year when the ASX 200 is up around 7%.

Flight Centre is the worst performer among its peers and even Webjet’s performance (despite its recent crash due to troubles with its UK partner Thomas Cook) is miles ahead as the WEB share price is still up by 24% over the period, while the Sydney Airport Holdings Pty Ltd (ASX: SYD) share price has gained around 7%.

Foolish takeaway

Having said that, I won’t be surprised if we are seeing some switching going on between Webjet and Flight Centre as investors may be looking for better bargains.

However, I am not sure if travel related companies do represent good buys on the whole as the weak Australian dollar and slumping property prices could be encouraging Aussies to take cheaper domestic holidays instead.

Falling house prices often prompt consumers to put off making big ticket purchases like holidays and cars, while the unfavourable exchange rate makes going overseas more expensive.

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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Flight Centre Travel Group Limited and Sydney Airport Holdings Limited. The Motley Fool Australia has recommended Webjet Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019