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Alpha Pro Tech (NYSE: APT) Stock is a “New Normal” Hedge Play

Monday, June 29, 2020 | Jea Yu
Alpha Pro Tech (NYSE: APT) Stock is a “New Normal” Hedge Play Shares of disposable protective apparel maker Alpha Pro Tech, Inc. (NYSE: APT) have been a rollercoaster ride since being discovered as a direct COVID-19 beneficiary. The maker of disposable face masks and protective infection control gear has seen unprecedented growth from the global pandemic. Shares of this former $3 stock surged as high as $41.59 when the markets were first spooked by the spread of the novel coronavirus in February 2020 just as the S&P 500 index (NYSEARCA: SPY) commenced its (-34%) slide from all-time highs to a bear market in the record time of under 5-weeks. Investors looking to play the ‘new normal’ and potential 2nd wave COVID-19 threat may want to look further into pullback opportunities as regions and industries institute mandatory face mask orders.

Q1 FY 2020 Earnings Release

On May 6, 2020, Alpha Pro Tech released their Q1 2020 earnings for the quarter ended March 31, 2020. Revenues grew by 47.5% year-over-year (YoY) to $18.2 million and net income surged 339% YoY to $5.3 million versus $1.2 million Q1 2020. This boosted Q1 2020 earnings-per-share (EPS) to $0.39 compared to $0.09 YoY. The Company saw a “significant” increase of orders for face shields, N-95 face masks, gowns, surgical masks, and coveralls in addition to the Building Supply segment. The Salt Lake City, Utah manufacturing facility is back to full production and the protective apparel garments partner in India has reopened after the country-wide government-mandated shutdown through May 18, 2020. The Company expects to implement the Phase II expansion of its N-95 Particulate Respiratory face mask production line by late summer. The bottom line is increased capacity to meet overwhelming demand is moving forward as 8% of booked orders have request dates into 2021.

Keeping the Restart Narrative From Unraveling

Rushing to restart economies too quickly has resulted in arguably the second wave of COVID-19 spikes causing hotspots in Florida, Texas, California, and Arizona. The surge of COVID-19 infections was so severe that Texas and Florida Governors immediately ordered all bars and nightclubs shut down again and rollback the restart for that industry. Numerous cases of packed bars with drunk or impaired young patrons ignoring face masks arguably directly contributed to the spikes. Alpha Pro Tech products are instrumental in curbing the spread. New jurisdictions and industry players are advocating mandatory usage of face masks. California implemented an order on June 18, 2020, mandating face masks worn in public one week after various counties including San Bernardino, Fresno, and Riverside. Washington State requires masks to be worn in public and Nevada initiated mandatory face mask usage in public and casinos on June 25, 2020.

States Stuck Between a Rock and Hard Place

States are adamant about not re-instituting stay-at-home mandates, rather they will slow phasing in complete starts or rollback certain industries. The contraction in tax revenues and budget shortfalls place them between a rock and a hard place. Jurisdictions and industries instituting mandatory measures to slow down the spread with the mandatory use of face masks will be the new normal. Alpha Pro Tech is in an extended sweet spot here as disposable face masks mean continued and increasing demand as more works and consumers leave their homes to resume the “new normal”.

The “New Normal” of Social Engagement

The demand for disposable face masks will rise as economies restart and isolation mandates are lifted. As workers and consumers once again engage in activities requiring social interaction at a distance, the need for disposable face masks will increase, not decrease. The logic is simple, the more you leave the house, the more you will need to utilize face masks to curtail the spread of COVID-19. While there may be a lot of competition and people can make their own masks, the reality is that professional-grade disposable masks are easier and safer to use. This will be the “new normal” even with the discovery of a vaccine until herd immunity takes effect, which could take years.

Added to Russell 2000 and 3000 Indexes

Alpha Pro Tech joins the Russell 3000 and Russell 2000 Indexes effective June 29, 2020. This helps to ensure more liquidity and potential institutional ownership that comes with additions to benchmark indexes. Sympathy mask manufacturer price activity on a much larger scale can be loosely linked to 3M (NYSE: MMM) shares.

Alpha Pro Tech (NYSE: APT) Stock is a “New Normal” Hedge Play

APT Opportunistic Price Levels

Using the rifle charts on weekly and daily time frames provides a broader view of the landscape for APT stock. The weekly rifle chart is forming a breakout with stochastic crossing up through the 50-band. The daily rifle chart triggered a market structure low (MSL) above $9.64 and $10.87 while a market structure high triggers under $12.61. The recent stochastic oscillation peaked at the $20.59 Fibonacci (fib) level. A break of the daily 5-period moving average MA) sets up pullback channel tightening on an 80-band daily stochastic cross down. This can provide opportunistic pullback levels for risk-tolerant investors and nimble traders at $14.16 weekly 5-pd MA/fib, $12.61 daily MSH trigger, $10.87 and $9.64 daily MSL triggers. The best defense lies in getting good entry prices. The average daily volume has risen to nearly 5-million shares, so liquidity has improved. The weekly upper Bollinger Bands project upside potential towards the $22.67 to the $25.92 gatekeeper fib. Nimble traders can play the various in-between fibs for reversions and breakouts.  

Companies Mentioned in This Article

CompanyBeat the Market™ RankCurrent PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Alpha Pro Tech (APT)0.0$11.98flatN/A8.21N/AN/A
3M (MMM)2.4$176.89flat3.32%20.74Hold$170.17
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7 Stocks That Will Help You Forget About the Fed

Normally when the Federal Reserve (i.e. the Fed) makes an announcement, the market reacts predictably. That’s due, in large part, to the nature of what the Fed normally announces. Will interest rates go up, down, or remain unchanged? And for their part, the markets have a pretty good idea what the Fed will do before they do it.

But the Fed’s announcement of August 26 was a little different. They talked briefly about interest rates (they’re staying really low for a long time). But they were more concerned about inflation. Well, the Fed is always concerned about inflation, but this time they really mean it. Basic economics says that low-interest rates should spur inflation.

However, the market has been defying conventional wisdom and the Fed is not getting the inflation they want. So the Fed has basically said that they’re letting inflation go rogue. If it goes above their target 2% rate, so be it. The Fed is done trying to hit a target. At first, the markets cheered the news. Not only was the Fed not taking away the punch bowl, but they were also going to keep the low rate liquidity going for a long time!

But after a little while to digest things, investors are realizing they have to be grown-ups about this. And now investors are considering how to rebalance their portfolios for the remainder of 2020.

I don’t know about them, but if I were you I would target companies that have a high free cash flow (FCF). Whether it’s your personal finances or in evaluating a stock, cash flow is your friend.

When a corporation has high FCF, they have more strong growth in good markets and more flexibility during when the economy is weaker.

As institutional investors come back into the market, it’s time for you to reposition your portfolio for whatever comes next.

View the "7 Stocks That Will Help You Forget About the Fed".

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