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A stock trader claps at the end of trade at the New York Stock Exchange


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  • It’s time to consider investing in smid-cap stocks, according to Bank of America analysts.
  • The analysts make the case for smid-cap stocks on both sides of the Atlantic.
  • We list their top 36 stock picks, including one that could surge 135%.
  • See more stories on Insider’s business page.

Most investors have been cautious about investing in small- to mid-cap stocks following the extraordinary rally that took place after news of the first effective vaccine emerged towards the end of last year. 

However, it might be time to reconsider investing in smid-caps as the outlook for the stocks look strong on both sides of the Atlantic, according to Bank of America analysts.

Bank of America’s US analysts have favored small-caps for several months. However, their European counterparts have just upgraded the stocks to overweight based on an expectation that there will be further upside to the euro area purchasing manufacturers index, which is a measure of activity levels and an indicator of overall economic performance.

“We highlight stock opportunities in both regions poised to benefit against the current backdrop (stronger relative ’21/’22 US growth and rising inflation), as well as beneficiaries of the faster-than-expected re-opening in Europe,” Bank of America analyst Jill Carey Hall said in a May 26 research note.

Although the analysts are recommending opportunities in both regions, the two markets are very different environments for smid-caps.

In the US, despite the strong recovery from the pandemic so far, small-caps have barely re-rated and are trading at a price-to-earnings discount relative to history and below pre-covid levels, according to the analysts.

In Europe, smid-cap valuations are at their highest in well over a decade.

“Additionally, in Europe, the relative performance index of small vs. large has rallied to post-Global Financial Crisis highs – which is not true in the US, where small caps have seen a similarly strong rally off March ’20 lows but are still well below prior cycle highs after underperforming since 2013,” Hall said.

US smid-cap stocks are also trading at a discount relative to European peers, despite having stronger earnings.

So the case might be clear for investing in US smid-caps, but Bank of America’s analysts believe there is a strong argument in favor of buying European names too. 

Small cap stocks tend to outperform large cap stocks around 75% of the time in the mid-cycle phase, which is where the team believes the market currently is. 

“We’re currently in month four [of the mid-cycle phase] (vs. 9-10 months historically) and where small caps are barely ahead of large caps this year after giving up much of their leadership in March/April,” Hall said.

So there’s reason to be bullish on smid-caps more broadly. But the case for Europe, in the near-term, is that there is upside expected from European PMIs as the recovery from the coronavirus pandemic fully gets underway in the region. 

“Year 2 of small cap outperformance cycles have typically seen ~10-12ppt of alpha vs. large caps, and we expect small caps to benefit from a yet-to-be-realized capex cycle in the US,” Hall said.

Taking this outlook into consideration, we list the top 36 European and US stock picks, according to Bank of America analysts, that are set to benefit from the reopening of the economy and the pickup in inflation that will likely ensue. 

Stock Market 1. MTU Aero Engines

Stock Market MTUAF stock on May 28 MTUAF stock on May 28


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Ticker: MTUAF

Sector: Industrials

Price target: €240 

Price target upside: 16%

US or European smid-cap: European smid-cap (64% North America exposure)

Analyst commentary: “MTU is exposed to the ongoing strength in the North American freighter markets with CF6 and PW2000 engines in their portfolio. Freight continues to show strength, with continued growth in FY21, driven in particular by e-Commerce trends. MTU also benefits from recovery in passenger traffic in North America, which has staged a very strong recovery given the rapid vaccine roll out.”

Source: BofA

Stock Market 2. ConvaTec

Stock Market CNVVF stock on May 28 CNVVF stock on May 28


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Ticker: CNVVF

Sector: Health care

Price target: £2.57

Price target upside: 12%

US or European smid-cap: European smid-cap (52% North America exposure)

Analyst commentary: “For ConvaTec, disproportionate exposure to the US is likely to drive a faster recovery curve than the market expects, as US chronic care clinics have been faster to reopen than EMEA peers. Equally, the faster rate of vaccinations in the US means elective surgeries are set to recovery in a more robust matter, while trauma incidences from travel / team sports should pick up before other regions, all of which aids ConvaTec’s relative growth.”

Source: BofA

Stock Market 3. SCOR

Stock Market SZCRF stock on May 28 SZCRF stock on May 28


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Ticker: SZCRF

Sector: Financials

Price target: €44 

Price target upside: 63%

US or European smid-cap: European smid-cap (49% North America exposure)

Analyst commentary: “We expect top-line growth for SCOR to be driven strongly by growth in US premiums, particularly in the P&C business. After portfolio restructuring in 2019-20, we expect the company to push for strong volume growth against an attractive pricing backdrop in global reinsurance markets. We expect a strong upcoming renewals update in June/July (US-focused), where we expect SCOR to achieve favourable rate and volume growth.”

Source: BofA

Stock Market 4. Sodexo

Stock Market SDXOF stock on May 28 SDXOF stock on May 28


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Ticker: SDXOF

Sector: Consumer discretionary

Price target: €97 

Price target upside: 24%

US or European smid-cap: European smid-cap (43% North America exposure )

Analyst commentary: “We think Sodexo is a good way to play North America recovery given the group generates more than 40% of its revenue in this region. We expect organic revenue growth to return to positive territory in North America from Q321E onwards.”

Source: BofA

Stock Market 5. Farfetch

Stock Market FTCH stock on May 28 FTCH stock on May 28


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Ticker: FTCH

Sector: Consumer discretionary

Price target: $75 

Price target upside: 84%

US or European smid-cap: European smid-cap (33% North America exposure)

Analyst commentary: “We think Farfetch is a good way to gain exposure to North America and especially the US, which is the group’s single largest country exposure. During the Q1 results call, management said online demand for luxury goods accelerated sharply in the US in March, something that hasn’t faded so far into Q2. This is particularly encouraging given investors were worried stores reopening in the country would have a negative impact on e-commerce trends, which doesn’t seem to be the case.”

Source: BofA

Stock Market 6. Atlantic Sapphire

Stock Market AASZF stock on May 28 AASZF stock on May 28


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Ticker: AASZF

Sector: Consumer staples

Price target: 200 Norwegian krone 

Price target upside: 135%

US or European smid-cap: European smid-cap (31% North America exposure)

Analyst commentary: “The fact that this facility is located in the US is critical, as it enables Atlantic Sapphire to be the first local producer of salmon for the US market. This avoids costly and CO2-intensive air freight, enables a fresher product (and so a price premium), and avoids government-imposed limitations on volume growth in Norway/Chile due to sea-based production’s biological challenges.”

“As a result, Atlantic Sapphire will be the most cost competitive and sustainable salmon supplier of the US market on our estimates. In the near-term, the post-COVID rebound in US foodservice demand will add additional sales channels for the company to exploit, although we expect its primary focus to remain on retail, as this allows better branding opportunities.”

Source: BofA

Stock Market 7. Informa

Stock Market IFPJF stock on May 28 IFPJF stock on May 28


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Ticker: IFPJF

Sector: Communication services

Price target: £6.90 

Price target upside: 29%

US or European smid-cap: European smid-cap (30% North America exposure)

Analyst commentary:“The US is the largest exhibitions market globally and a key barometer for broader industry reopening. In recent months, we’ve seen momentum starting to rebuild in key exhibitions markets like Nevada/Las Vegas and Florida. This is a potentially important driver for Informa’s revenue in FY21, but we also expect early data from shows that run in-person to cement the importance of face-to-face interaction in a post-pandemic future, which is supportive for Informa’s events exposure as a whole.”

Source: BofA

Stock Market 8. AAK

Stock Market ARHUF stock on May 28 ARHUF stock on May 28


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Ticker: ARHUF

Sector: Consumer staples

Price target: 250 Swedish krona 

Price target upside: 30%

US or European smid-cap: European smid-cap (29% North America exposure)

Analyst commentary: “In the longer term, the US is an important region for two of AAK’s key growth engines – chocolate (c. one-third of EBIT) and plant-based foods (c. 4% EBIT but growing high double-digits) – as American consumers continue to premiumise their chocolate consumption and shift toward plant-based proteins/dairy. Both of these require specialty oils & fats ingredients in which AAK is the global market leader.”

Source: BofA

Stock Market 9. Spirax Sarco

Stock Market SPXSF stock on May 28 SPXSF stock on May 28


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Ticker: SPXSF

Sector: Industrials

Price target: £146.00

Price target upside: 18%

US or European smid-cap: European smid-cap (26% North America exposure)

Analyst commentary: “During the pandemic distributors went through a phase of de-stocking and we expect that with an improving economic outlook in the US, restocking should provide additional tailwinds to US growth alongside continued success of the direct sales model. Outside of this, the Chromalox business is mostly US focused, with above group average levels of exposure to O&G (oil & gas), which was a headwind in 2020 and could reverse alongside a wider pick-up in both US and Global economic activity.”

Source: BofA

Stock Market 10. Arkema

Stock Market ARKAF stock on May 28 ARKAF stock on May 28


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Ticker: ARKAF

Sector: Materials

Price target: €120 

Price target upside: 11%

US or European smid-cap: European smid-cap (25% North America exposure)

Analyst commentary: “On the one hand, Arkema is benefiting from a very strong US construction market, which increases demand for its adhesive and coating products. However, winter storm Uri hampered operational activity, as the company lacked supply of propylene. Resolving this bottleneck will help US sales but it should somewhat come at the expense of margins in Asia where its acrylic acid plant benefited from higher spreads on the back of market tightness.”

Source: BofA

Stock Market 11. IMCD

Stock Market IMDZF stock on May 28 IMDZF stock on May 28


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Ticker: IMDZF

Sector: Industrials

Price target: €150

Price target upside: 11%

US or European smid-cap: European smid-cap (25% North America exposure)

Analyst commentary: “IMCD only entered the US market in 2015, so we expect the company to gain share as it rolls out its model and its offering benefits from the integration of recent acquisitions. Volume growth (c.6%) should also lead to some operating leverage and enable margins to reach the same level as Europe mid-term, having lagged by 80bps last year.”

Source: BofA

Stock Market 12. IAG

Stock Market Graph of ICAG stock from Investing.com on May 28 Graph of ICAG stock from Investing.com on May 28


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Ticker: ICAG

Sector: Industrials

Price target: £2.70 

Price target upside: 37%

US or European smid-cap: European smid-cap (21% North America exposure)

Analyst commentary: “IAG is well placed to benefit from resumption in travel and the easing of travel restrictions in the US, UK and Europe in 2021 that should lead to a demand recovery. Our global travel survey in March showed that Europe is the most popular travel destination for US respondents once borders reopen, and we expect IAG to benefit from this pent-up demand.”

Source: BofA

Stock Market 13. Soitec

Stock Market SLOIF stock on May 28 SLOIF stock on May 28


Markets Insider



Ticker: SLOIF

Sector: Information technology

Price target: €240 

Price target upside: 50%

US or European smid-cap:  European smid-cap (20% North America exposure)

Analyst commentary: “Soitec is a key enabler of 5G technology and will benefit regardless of the geography that is driving demand for 5G smartphones. As the economic recovery picks up in the US, it may lead to increasing adoption of 5G smartphones in the US and we would expect Soitec to benefit from this increasing demand.”

Source: BofA

Stock Market 14. Dufry

Stock Market DFRYF stock on May 28 DFRYF stock on May 28


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Ticker: DFRFY

Sector: Luxury goods & retail

Price target: 75 Swiss franc 

Price target upside: 39%

US or European smid-cap: European smid-cap (17% North America exposure)

Analyst commentary: “Dufry is a gateway to North America given its leading position in the North American travel retail business via subsidiary Hudson (which is now fully owned). As North America reopens and the recovery continues, we should expect air travel to recover, which is already occurring. This will directly benefit Dufry and drive sales in its second-largest region (behind EMEA).”

Source: BofA

Stock Market 15. ASOS

Stock Market ASOMF stock on May 28 ASOMF stock on May 28


Markets Insider



Ticker: ASOMF

Sector: Luxury goods & retail 

Price target: £65.00

Price target upside: 34%

US or European smid-cap: European smid-cap (12% North America exposure)

Analyst commentary: “Asos is an interesting company to gain exposure to the US, as it is well positioned in the “going-out” apparel category, which seems to have been gaining traction in the past few months. After a period of underperformance, the US is now an important driver of growth for Asos ( 16% growth in retail sales in the last 6 months), and the region saw the strongest revenue growth rates for the Arcadia brands that Asos recently acquired.”

Source: BofA

Stock Market 16. Thyssenkrupp

Stock Market TYEKF stock on May 28 TYEKF stock on May 28


Markets Insider



Ticker: TYEKF

Sector: Metals & mining

Price target: €16.00 

Price target upside: 60%

US or European smid-cap: European smid-cap (8% North America exposure)

Analyst commentary: “Steel markets are global markets, and the US along with the rest of the world is seeing a V-shaped economic recovery from the shock of COVID.   Also there are discussions about a potential lifting of US tariffs on European metals.  If this happens, we’d expect to see European steel prices bid up, which would be beneficial for TKA’s realized steel pricing.”

Source: BofA

Stock Market 17. World Fuel Services Corp

Stock Market INT stock on May 28 INT stock on May 28


Markets Insider



Ticker: INT

Sector: Transport

Price target: $40 

Price target upside: 28%

US or European smid-cap: US smid-cap

Analyst commentary: “As vaccines help to spur reopening, causing aviation, marine and land-based fuel demand to return, INT mostly benefits though higher volumes, and gross revenues benefit from rising price.”

Source: BofA

Stock Market 18. Knight-Swift

Stock Market Graph of KNX stock on Investing.com Graph of KNX stock on Investing.com on May 28


Investing.com



Ticker: KNX

Sector: Transport

Price target: $54 

Price target upside: 14%

US or European smid-cap: US smid-cap

Analyst commentary: “For KNX, trucking valuations are less stretched than other transports, the group also has the ability to surcharge customers for higher fuel, and, thanks to strong demand and low inventories, the ability to pass through higher labor costs.”

Source: BofA

Stock Market 19. Kirby

Stock Market KEX stock on May 28 KEX stock on May 28


Markets Insider



Ticker: KEX

Sector: Transport

Price target: $73 

Price target upside: 13%

US or European smid-cap: US smid-cap

Analyst commentary: “In Shipping, KEX is poised to benefit when refined fuel picks up with reopening.”

Source: BofA

Stock Market 20. HESS

Stock Market HES stock on May 28 HES stock on May 28


Markets Insider



Ticker: HES

Sector: Energy

Price target: $110

Price target upside: 33%

US or European smid-cap: US smid-cap

Analyst commentary: “Hess is partnered with Exxon Mobil in Guyana, which is the most capital efficient greenfield development in the industry and it will be transformational for Hess over the balance of this decade, providing cash flow and growth at a time when many peers are not growing.”

Source: BofA

Stock Market 21. Occidental Petroleum Corp

Stock Market OXY stock on May 28 OXY stock on May 28


Markets Insider



Ticker: OXY

Sector: Energy

Price target: $42

Price target upside: 71%

US or European smid-cap:  US smid-cap

Analyst commentary: “For OXY, higher oil prices are helpful to the FCF story and the scale of cash available to accelerate debt reduction is significant, especially considering asset sales. He believes OXY has line of sight to reduce net debt by over $8B. He still seems some catalysts ahead for these stocks (exploration news, asset sales, etc.)”

Source: BofA

Stock Market 22. Principal Financial Group

Stock Market PFG stock on May 28 PFG stock on May 28


Markets Insider



Ticker: PFG

Sector: Life insurance

Price target: $76 

Price target upside: 19%

US or European smid-cap: US smid-cap

Analyst commentary: “Life insurers are generally positively correlated to inflation. The liability side of the balance sheet tends to be fixed while the asset side is able to compound to those liabilities more quickly. Within PFG, its retail life book is most levered to this theme.”

Source: BofA

Stock Market 23. Robert Half International

Stock Market RHI stock on May 28 RHI stock on May 28


Markets Insider



Ticker: RHI

Sector: Business & information sevices

Price target: $93 

Price target upside: 7%

US or European smid-cap: US smid-cap

Analyst commentary: “Core staffing operations will have fallen 27% Y/Y through Q221 and Robert Half should see a big snapback with the recovery. Additionally, in case wages rise, they will pass most of that increase on to their temporary employees, but keep a small amount, which falls directly to the bottom line and boosts margins. This has played out consistently in past cycles and had already begun as of last quarter.”

Source: BofA

Stock Market 24. CNH Industrial

Stock Market CHNI stock on May 28 CHNI stock on May 28


Markets Insider



Ticker: CNHI

Sector: Machinery

Price target: $21 

Price target upside: 25%

US or European smid-cap: US smid-cap

Analyst commentary: “CNH (CHNI) is the second-largest farm equipment company behind Deere. Grain markets are tight and farmer appetite for equipment is rising. The stock trades at a significant discount to Deere with potential catalysts to close some of the gap including the likely divestiture of the IVECO commercial vehicle business. The company also has a new CEO that is focused on driving productivity and streamline operations.”

Source: BofA

Stock Market 25. Herc Holdings

Stock Market HRI stock on May 28 HRI stock on May 28


Markets Insider



Ticker: HRI

Sector: Machinery

Price target: $147 

Price target upside: 40%

US or European smid-cap: US smid-cap

Analyst commentary: “For HRI, with construction projects coming back and with a lot of equipment having been cleared in 2020, used equipment prices are rising, and historically that has tended to lead to better rental pricing. Pricing could get even stronger as commercial construction remains fairly weak but could improve with reopening and the economy. An infrastructure bill would also help.”

Source: BofA

Stock Market 26. Alcoa

Stock Market AA stock on May 28 AA stock on May 28


Markets Insider



Ticker: AA

Sector: Metals & mining

Price target: $56 

Price target upside: 59%

US or European smid-cap: US smid-cap

Analyst commentary: “Within the inflation-friendly metals and mining group, AA looks cheapest among preferred Buy-rated names. Aluminum benefits from electrification and EV demand and from China’s restrictions on coal-fired smelters, a positive for aluminum pricing.”

Source: BofA

Stock Market 27. Axalata Coating Systems

Stock Market AXTA stock on May 28 AXTA stock on May 28


Markets Insider



Ticker: AXTA

Sector: Chemicals

Price target: $38 

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Price target upside: 21%

US or European smid-cap: US smid-cap

Analyst commentary: “AXTA has a fairly attractive valuation, especially relative to key architectural coatings names, which also face tough comps. Improvement in miles driven, as people go back to work and resume traveling, should benefit the aftermarket coatings business. While shares have experienced some recovery, Byrne sees more to go.”

Source: BofA

Stock Market 28. Tempur Sealy

Stock Market TPX stock on May 28 TPX stock on May 28


Markets Insider



Ticker: TPX

Sector: Retail

Price target: $55 

Price target upside: 50%

US or European smid-cap: US smid-cap

Analyst commentary: “Curtis Nagle highlights Buys on mattress stocks TPX & PRPL, where the group has strong pricing power. Most have put through two prices increases in the past year to offset higher material costs. Demand is booming, the industry is rational and mattresses are a long-dated purchase so customers generally don’t have great price awareness. The industry has a long history of pricing growth as well (3% /yr over the past 20 years).”

Source: BofA

Stock Market 29. Purple

Stock Market PRPL stock on May 28 PRPL stock on May 28


Markets Insider



Ticker: PRPL

Sector: Retail

Price target: $40 

Price target upside: 38%

US or European smid-cap: US smid-cap

Analyst commentary: “Curtis Nagle highlights Buys on mattress stocks TPX & PRPL, where the group has strong pricing power. Most have put through two prices increases in the past year to offset higher material costs. Demand is booming, the industry is rational and mattresses are a long-dated purchase so customers generally don’t have great price awareness. The industry has a long history of pricing growth as well (3% /yr over the past 20 years).”

Source: BofA

Stock Market 30. Advanced Auto Parts

Stock Market AAP stock on May 28 AAP stock on May 28


Markets Insider



Ticker: AAP

Sector: Retail

Price target: $216

Price target upside: 15%

US or European smid-cap: US smid-cap

Analyst commentary: “Additionally, auto aftermarket stocks are a non-discretionary category and enjoy strong market positions, where Liz Suzuki highlights Buy-rated AAP and DRVN.”

Source: BofA

Stock Market 31. Driven

Stock Market DRVN stock on May 28 DRVN stock on May 28


Markets Insider



Ticker: DRVN

Sector: Retail

Price target: $39

Price target upside: 34%

US or European smid-cap: US smid-cap

Analyst commentary: “Additionally, auto aftermarket stocks are a non-discretionary category and enjoy strong market positions, where Liz Suzuki highlights Buy-rated AAP and DRVN.”

Source: BofA

Stock Market 32. East West

Stock Market EWBC stock on May 28 EWBC stock on May 28


Markets Insider



Ticker: EWBC

Sector: Banks

Price target: $100 

Price target upside: 36%

US or European smid-cap: US smid-cap

Analyst commentary: “We see a modest inflationary backdrop as positive for East West Bank (EWBC) and Synovus (SNV) given the potential for their asset yields to re-price in a rising interest rate environment. Moreover, a recovering economy should also offer significant growth opportunities as it relates to their commercial & industrial (C&I) lending and commercial real estate businesses.”

Source: BofA

Stock Market 33. Synovus

Stock Market SNV stock on May 28 SNV stock on May 28


Markets Insider



Ticker: SNV

Sector: Banks

Price target: $58 

Price target upside: 24%

US or European smid-cap: US smid-cap

Analyst commentary: “We see a modest inflationary backdrop as positive for East West Bank (EWBC) and Synovus (SNV) given the potential for their asset yields to re-price in a rising interest rate environment. Moreover, a recovering economy should also offer significant growth opportunities as it relates to their commercial & industrial (C&I) lending and commercial real estate businesses.”

Source: BofA

Stock Market 34. Westwork

Stock Market WRK stock on May 28 WRK stock on May 28


Markets Insider



Ticker: WRK

Sector: Packaging & paper

Price target: $68 

Price target upside: 18%

US or European smid-cap: US smid-cap

Analyst commentary: “For the containerboard companies, where we highlight Buy-rated mid caps IP, PKG & WRK, tightness throughout the paperboard supply chain driven by continued strong demand, and other factors should enable opportunities for more price implementation. While reported prices were flat in May, 35% of respondents in our latest BofA Box Survey expect pricing in 2H, and Fastmarkets RISI / PPW reported that contacts are increasingly expecting a fall domestic price hike.”

Source: BofA

Stock Market 35. Packaging Corp of America

Stock Market PKG stock on May 28 PKG stock on May 28


Markets Insider



Ticker: PKG

Sector: Packaging & paper

Price target: $166 

Price target upside: 11%

US or European smid-cap: US smid-cap

Analyst commentary: “For the containerboard companies, where we highlight Buy-rated mid caps IP, PKG & WRK, tightness throughout the paperboard supply chain driven by continued strong demand, and other factors should enable opportunities for more price implementation. While reported prices were flat in May, 35% of respondents in our latest BofA Box Survey expect pricing in 2H, and Fastmarkets RISI / PPW reported that contacts are increasingly expecting a fall domestic price hike.”

Source: BofA

Stock Market 36. International Paper

Stock Market IP stock on May 28 IP stock on May 28


Markets Insider



Ticker: IP

Sector: Packaging & paper

Price target: $68 

Price target upside: 7%

US or European smid-cap: US smid-cap

Analyst commentary: “For the containerboard companies, where we highlight Buy-rated mid caps IP, PKG & WRK, tightness throughout the paperboard supply chain driven by continued strong demand, and other factors should enable opportunities for more price implementation. While reported prices were flat in May, 35% of respondents in our latest BofA Box Survey expect pricing in 2H, and Fastmarkets RISI / PPW reported that contacts are increasingly expecting a fall domestic price hike.”

Source: BofA

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