Just as it was starting to feel as if we had turned the corner in the fight against coronavirus, it looks like the bells about to ring for round two. Equities, which had been at the forefront of the economic recovery, are now at the forefront of the current panic as states across the country continue to report savage daily increases in new cases that far outweigh the figures from last quarters.
Just after logging its longest winning streak since December, the NASDAQ index had one of its worst days in months yesterday while the Dow Jones Industrial index saw a triple-digit point decline. As we noted elsewhere, some stocks that are particularly vulnerable to a second wave of COVID-19 and the associated economic fallout have been seeing heavy selling for a few weeks as investors take profits off the table and move to cash.
Already, the likes of Disney (NYSE: DIS) have delayed the reopening of their Disneyland theme parks, New York has reintroduced mandatory quarantine for travelers from virus hotspots and Apple (NASDAQ: AAPL) has started to shut its stores again. Investors awoke on Thursday to the grim news that US coronavirus cases were at an all-time high and equities were weak in early trading. As we head into the second half of the year, here are three stocks that are particularly vulnerable to a second wave of COVID-19.
Just as their shares were coming within a few points of reaching pre-pandemic levels after a 40% drop in two months, O’Reilly Automotive is in danger of seeing them sink just as viciously again. The reason for their high level of exposure comes from the high number of stores they have located in the very states that are seeing the biggest surge right now. Investment firm Instinet analyzed 12 virus stricken states like Florida, Texas, and Utah among others to see which companies had the most exposure there. O’Reilly Automotive came in close to the top with 49% of its total national stores located in those 12 hotspots.
If the initial round of restrictions was anything to go by, investors can expect non-essential businesses to be shut again in the coming weeks and for consumer spending on hard, physical goods to plummet. Just as they were starting to emerge unscathed, O’Reilly’s stock is on the chopping block again and down 5% this week already.
Carnival Corporation (NYSE: CCL)
Out of all the cruise ship names that could have made this list, Carnival is representing the industry because they’ve bounced the least since putting in savage lows at the end of March compared to the likes of Royal Caribbean (NYSE: RCL) or Norwegian (NYSE: NCLH). Cruise ships were among the first to fall in January, way ahead of the broader market, as bookings were canceled and vessels at sea turned into floating petri dishes.
Shares had bounced more than 200% off the lows through the start of June but as if to remind investors of the shaky ground they’re on, they’ve fallen 40% from those levels already and are struggling to find bids this week. A lot of the buying in recent weeks was on the basis of the industry opening back up, with September being shared as a tentative target for going back to sea. With a $2.4 billion loss looming in their Q2 earnings, a credit rating cut to junk by S&P, can they survive another lockdown?
Wynn was a stock that really struggled to catch the tide that raised so many others through April and May. As a high end operator of hotels and casinos, just like Carnival, they saw existing bookings cancel and new ones plummet overnight as the first wave of restrictions was rolled out. Their shares fell more than 70% and while they bounced 200% from those lows through the start of this month, that barely reclaimed half of the lost territory.
They’ve been under significant pressure for the past three weeks as concerns have mounted and are currently down 35% from their post-crash highs. Much of that bounce in shares had been based on a quicker than expected economic recovery which is quickly being put to rest as the shadow of a second round of restrictions looms.
With many tech names trading close to all-time highs, even with some weakness this week, there are much better and safer equities for investors to hold than these stocks and their peers from the same industries.
Companies Mentioned in This Article
6 Stocks That Will Benefit From a Dovish Federal Reserve
The quaint correction that was labeled the “tech wreck” of 2018 seems like a distant memory to investors. What also seems like a distant memory is any thought of the Federal Reserve raising interest rates.
At the end of 2018, the Federal Reserve had raised its benchmark federal funds rate. With the trade dispute with China dragging on, there was increasing pressure on the Fed to lower interest rates. When interest rates are lower, stocks will generally rise as investors have no other option for growth.
In July 2019, the doves got their wish. But in a move that now seems to be a “what did they know move”, the Fed dropped rates again in October. The market soared to record highs in January and early February. Since mid-February however, the market has fallen dramatically, and the Fed juiced the market one more time by cutting rates down to levels not seen since the financial crisis.
None of us know for sure when the U.S. economy will be opened up. And while stocks are still a good investment, not every stock is a smart investment at this time. But some stocks perform well when interest rates are falling and that’s why we’ve prepared this presentation.
These six stocks stand to benefit from both low-interest rates and the unique economic conditions being brought on by the Covid-19 pandemic.
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