Given the recent outsized stock moves so far during earnings season, Baird said the firm is now "opportunistically" adjusting its Top Picks in the packaging and coatings sector.
They now have a bias towards the packaging side following several quarters of favoring the coaters. Baird moved Silgan Holdings Inc (NYSE:SLGN), Sealed Air Corporation (NYSE:SEE) and PPG Industries Inc (NYSE:PPG) to its Top Picks list and now sees them as a buy.
The firm noted that packaging has been pressured by end-market inventory destocking intersecting with weaker point-of-sale "as the customer set has disproportionately pushed pricing over volume." However, it said the consumer is now starting to exhibit elasticity.
Meanwhile, Baird believes the bull case for coating stocks is being priced in and the risk/reward is more favorable in the packaging sector.
"Our Top Picks now as follows: SLGN/SEE/PPG. The latter is on the heels of our commensurate investment ratings upgrade of Silgan Holdings, noting that we have dropped both SHW and FUL from our Top Picks given the recent moves in the shares," the analyst wrote.
Baird sees its Top Picks as appropriately aligned towards several favorable dynamics across its coverage universe, with an eventual shift by the customer base towards promotional activity benefitting SLGN and a significant de-rating of investor expectations and a very low bar for the remainder of the year boosting SEE.
Furthermore, the firm said that exposure towards price/cost and end-market specific tailwinds such as Auto OEM and Aerospace will provide a tailwind for PPG.