Every couple of weeks or so, news about a COVID-19 vaccine sets the market's tone for a day. There's no secret as to why – whole industries still are being held down by the pandemic, just waiting to explode on some sort of "all-clear." The best stocks to buy ahead of such a vaccine are in these same industries, but they might be painful to hold in the short-term.
Consider this: The world is starting to look and feel a little closer to normal these days. Football has returned to TV, kids are in school in at least parts of the country, and it seems traffic in a lot of cities is picking back up.
But social gathering and events are still largely frowned upon, and large swaths of the world are still under varying degrees of lockdown. New York City recently re-closed schools and nonessential businesses in parts of Brooklyn and Queens. And overseas, both the United Kingdom and France are considering new restrictions due to exploding case counts.
It might be a while before we truly get our old lives back. As JPMorgan CEO Jamie Dimon recently commented, "I don't expect normality until summer 2021. We're going to have to live with this."
Even then, once COVID has come and gone, life likely will be permanently changed. A larger percentage of meetings will be virtual, and more people will work from home. However, group experiences are a big part of what it means to be human, and most of us long to be able to go to a packed stadium for a concert or sporting event, or even to something as mundane as a movie.
A safe, effective COVID-19 vaccine could get us there.
It's still unclear when and even if that will happen. Pfizer CEO Albert Bourla recently indicated in a CBS Face the Nation interview that we could know if Pfizer's vaccine is effective as soon as the end of October. But even then, it still would take time to get the vaccine into the bloodstream of Americans. CDC Director Robert Redfield told Congress that he didn't expect a vaccine to be mass produced and distributed until the second or third quarter of 2021.
So, it might be a while until a viable vaccine is available. But investors should always plan well ahead, including compiling "wish lists" of potential buys.
Here, we'll look at 11 of the best stocks to buy for when a COVID vaccine gets the green light. Just remember: Every day that COVID continues, these companies likely will continue to suffer, and a couple are at real existential risk. Thus, investors should only consider them if they're comfortable shouldering an elevated amount of risk.
Data is as of Oct. 12.
- Market value: $6.6 billion
- Year-to-date return: -56.0%
Few industries have been disrupted as badly as the airlines.
While flights have resumed with few restrictions, passenger volume is a fraction of what it was last year. Data from the Transportation Security Administration showed an average of 820,668 passengers per day in US airports between Oct. 1-11. That compares to an average of just less than 2.4 million passengers per day over the same period last year.
More than six months after the pandemic first disrupted American life, passenger traffic is still down by nearly two-thirds.
Even if we did get a COVID-19 vaccine tomorrow, traffic wouldn't return to last year's numbers immediately. With the economy limping along, it might take leisure travel a year or two to recover, if not longer. And business travel may never fully recover now that companies have seen the value of cutting costs with virtual meetings.
Nonetheless, a viable vaccine would be a major shot in the arm to the airlines (pun absolutely intended). The industry doesn't necessarily need passenger traffic to return to pre-crisis levels. They just need that proverbial light at the end of the tunnel to give lenders the confidence to keep extending credit.
This brings us to American Airlines (AAL (opens in new tab), $12.92), which would be one of the best stocks to buy for a vaccine rebound. AAL has seen its share price obliterated this year. Even after bouncing strongly off its second-quarter lows, shares still are worth less than half of what they were at the start of 2020.
The airline has already had to retrench, eliminating or proposing to eliminate service to 15 cities, and it might cut service to 15 more if federal aid isn't forthcoming.
A vaccine doesn't make American Airlines' problems instantly disappear. But it likely would stem the bleeding and make the company viable.
- Market value: $10.6 billion
- Year-to-date return: -59.5%
Along the same lines, United Airlines (UAL (opens in new tab), $36.38) would be a major beneficiary of a COVID vaccine.
To provide an idea of just how badly COVID wrecked this business, United said it expected its cash burn to improve to around $25 million per day during the third quarter. In the second quarter, United burned through around $40 million per day.
Hey, what's $25 million per day among friends? But digging deeper into the numbers, United forecast passenger revenue would decline 85% year-over-year in the third quarter. And again, this would be a noticeable improvement over Q2.
United has done its best to cut costs by slashing capacity by around 70%. That helped to slow the bleeding, and UAL has enough liquidity to continue operating at reduced capacity for the foreseeable future. But ultimately, the conversation needs to shift from mitigating losses to actually making money again. And a COVID vaccine would certainly help to make that possible.
It has been a tough year for UAL shareholders, whose holdings remain down by roughly 60% in 2020. And the road to recovery will be a long one. But United would be among the best stocks to buy if we got a viable vaccine – that, as well as a hopefully more robust economy, would push UAL farther down that road.
Delta Air Lines
- Market value: $20.8 billion
- Year-to-date return: -45.5%
We'll throw one last airline into the mix: Delta Air Lines (DAL (opens in new tab), $32.64).
Delta's share price has held up a little better than some of its peers, but DAL stock still is off by more than 45% year-to-date. There's really no mystery here. Both leisure and business travel are in the tank, and it's a slow road to recovery.
Interestingly, Delta's road might be a little shorter than some of its peers. In a recent note to subscribers, Andy Swan, principal of social media analytics company LikeFolio, analyzed social media mentions of Delta and specifically purchase intent of the social media poster.
Not surprisingly, purchase intent is down in 2020. Swan calculated that purchase intent for Delta was down 42% over the past 30 years relative to the same period last year.
But here's where it gets fun. That's noticeably less bad that all of its major peers. Southwest Airlines (LUV (opens in new tab)), American Airlines and United Airlines saw decreases of purchase intent of 50%, 58% and 64%, respectively.
Delta is looking less bad than its peers, but its situation is still far from good. For DAL to return to financial health, it needs to see international travel and business travel return to something at least closer to pre-COVID normal. And that's a lot easier to imagine once a vaccine is available.
- Market value: $13.7 billion
- Year-to-date return: -71.1%
Few stories from the pandemic were as ghastly as those experienced by cruise passengers on infected ships. Trapped on a boat for weeks and unable to disembark due to quarantine rules, just waiting to catch the highly infectious virus from one of your fellow passengers … it's enough to make a would-be passenger think twice before ever buying cruise tickets again.
There are precious few examples of worse breeding grounds for the virus than a cruise ship, which is why the industry has been shut down since the first quarter. A no-sail order remains in effect in the United States through Oct. 31, and there is no guarantee it isn't extended further.
Not surprisingly, Carnival (CCL (opens in new tab), $15.21) has really suffered over the past six months. The company has seen its revenues shrink to nearly nothing while still maintaining an expensive cost structure. Its share price is down by more than two-thirds from its 52-week high; the only surprise is that shares haven't cratered further.
Die-hard cruise fans will no doubt return once they are legally allowed to. But it's hard to see demand returning to pre-crisis levels ever again without a vaccine.
But CCL would be one of the best stocks to buy if we get a COVID-19 vaccine soon. If we do see a vaccine by, say, the first quarter of 2021, Carnival could rebound sharply through summer.
Liberty Braves Group
- Market value: $1.2 billion
- Year-to-date return: -22.2%
Live sports have been an unfortunate casualty of the COVID pandemic. Social distancing is impossible in a stadium full of tens of thousands of people, and no professional team wants the notoriety of hosting a super-spreader event.
While the owners of baseball, basketball, football and other major sports teams still enjoy TV rights and merchandising, losing live ticket sales is a major blow.
This brings us to the Liberty Braves Group (BATRA (opens in new tab), $23.06), the owner of Major League Baseball's Atlanta Braves and their stadium, as well as associated real estate projects. The Liberty Braves Group is a subsidiary of John Malone's Liberty Media empire.
Liberty Braves' stock price got utterly obliterated in the early days of the pandemic, dropping from over $30 per share to just $13.59. The shares have since recovered to $23 and have been trending higher since July.
Still, let's face it. Watching baseball on TV and seeing a stadium full of cardboard cutouts is lame. If baseball is to get its mojo back, we need to see packed stadiums again. And that won't happen until we get a vaccine.
Madison Square Garden Sports
- Market value: $3.6 billion
- Year-to-date return: -28.5%
In the same vein is Madison Square Garden Sports (MSGS (opens in new tab), $149.96), which owns the National Basketball Association's New York Knicks and National Hockey League's New York Rangers franchises, among other properties.
Live sports are a tough sell in the age of social distancing. But if you believe that life will eventually get back to normal, any weakness in this sector should be viewed as a buying opportunity.
Valuing sports franchises is somewhat difficult because these are trophy assets with few relevant comps. But Forbes recently estimated the value of the Knicks franchise at $4.6 billion and the Rangers at $1.65 billion, giving the two companies a combined value of $6.25 billion. The stock, meanwhile, trades at a market cap of just $3.6 billion.
There is no guarantee that MSGS will ever be worth Forbes' estimate of its underlying properties. At the end of the day, a stock is only worth what a buyer is willing to pay. But if we get a vaccine that allows sports to start looking normal again, it's not unreasonable to assume investors will look at MSGS a bit more favorably.
It's also worth noting that you can buy Madison Square Garden Entertainment (MSGE (opens in new tab)), which owns the iconic Madison Square Garden itself, as well as other properties. Madison Square Garden, which has been the site of other memorable sports moments, such as the "Fight of the Century" between Muhammed Ali and Joe Frazier in 1971, is the current home of the Knicks and Rangers, and hosts concerts when the teams are away.
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- Market value: $1.8 billion
- Year-to-date return: -65.7%
COVID-19 has made concentrated gatherings of people all but impossible this year. That's a big problem if you operate in the leisure and entertainment sector – or if you happen to be a landlord specializing in leisure and entertainment properties.
This brings us to EPR Properties (EPR (opens in new tab), $24.74).
It's hard to imagine a landlord hit harder by the pandemic than EPR, a real estate investment trust (REIT). Eighty-nine percent of its portfolio is "experiential," meaning it revolves around people leaving their homes to do something with other people. Forty-six percent of its rent revenues come from movie theater tenants, with "eat and play" properties like golf driving ranges and bowling alleys making up another 22%. Ski resorts and theme parks make up another 8% and 6%, respectively.
When tenants suffer, so does the landlord. Through the second quarter, tenants accounting for fully 82% of EPR's revenues were on some sort of rent deferral or restructuring plan. In August, the last month for which we have data, the company collected only 35% of its rents. EPR reported that it expects permanent rent reductions to some of its troubled tenants, including movie theater chain AMC, to lower rent by 5% to 7% from pre-COVID levels.
The sooner a vaccine is available, the sooner EPR's tenants return to financial health and the sooner this REIT can start raising its rents again. That makes EPR one of the best stocks to buy if a vaccine seems imminent … but until then, the firm is in for a long, hard slog.
AMC Entertainment Holdings
- Market value: $446.0 million
- Year-to-date return: -45.6%
If EPR Properties has gotten hit hard, you can imagine it's been all the worse for its largest tenant, AMC Entertainment Holdings (AMC (opens in new tab), $4.08).
Movie theaters are legally allowed to be open in most cities, if still at reduced capacity, but there are some major exceptions. Movie theaters are mostly shuttered in New York, Los Angeles and San Francisco, which together make up about a quarter of all American movie ticket sales.
But here are two biggest problems.
- Even if theaters are open, patrons have to be willing to go.
- Theaters have to show something worth seeing.
Neither condition exists today. Patrons are still keeping their distance, and studios are withholding their best titles until conditions improve. But patrons aren't likely to make it back to the theaters until there's a movie they want to see bad enough to take the risk. It's a bit of a circular problem, and one that likely won't be fixed until we have a viable vaccine.
While AMC likely would pounce on vaccine news, understand that this is an extremely high-risk pick. The company said Oct. 13 that its current cash pile would be "largely depleted" sometime between the end of 2020 or early 2021 because attendance has failed to bounce back. The "B" word – bankruptcy – has been bandied about (opens in new tab), and in that scenario, shareholders all but certainly would be wiped out.
A vaccine can't come soon enough.
- Market value: $11.0 billion
- Year-to-date return: -9.5%
Las Vegas took the pandemic particularly hard. Much of the Las Vegas Strip was closed for months, and some casino properties have yet to reopen. And even in the casinos that are open, capacity is limited to 50% and the vibe is very different. Playing poker with plexiglass between the players loses some of its appeal. The electricity that comes with a crowded casino floor is gone.
People go to Las Vegas to do reckless things they'd never do at home. Attempting to have an epic bachelor party in the age of social distancing just seems a little pointless.
This brings us to Caesars Entertainment (CZR (opens in new tab), $53.95), which owns the Caesars Palace, Paris Las Vegas, and Bally's Las Vegas, among other properties. Needless to say, Caesars' business has suffered in 2020. Revenues for the quarter ended in June were barely 20% of the revenues from the same period a year ago.
Caesars isn't going down without a fight. It's planning to restart its popular Absinthe show later this month, though at a socially distanced reduced capacity. Caesars also is making a wager on sports betting via a $3.7 billion buyout of British bookmaker William Hill (WIMHY (opens in new tab)).
CZR has held up far better than its peers, improving to "just" single-digit losses in 2020. But it won't be at full strength until people are comfortable cramming into a casino together, and that's not likely to happen without a vaccine in place.
Las Vegas Sands
- Market value: $35.3 billion
- Year-to-date return: -33.1%
Along the same lines, we have Las Vegas Sands (LVS (opens in new tab), $46.17).
Sands owns the Venetian Resort Hotel Casino and the Sands Expo in Las Vegas, but its main focus is in Asia, and specifically the gambling hub of Chinese special administrative region Macao. It owns and operates the Venetian Macao Resort Hotel, the Sands Cotai Central, the Parisian Macao, the Plaza Macao and Four Seasons Macao, Cotai Strip, and the Sands Macao in Macao, among other properties.
China has COVID-19 largely under control and has been able to resume something pretty close to life as usual. But it wasn't until August that Macau started allowing tourists to enter the city again, so the city is only just now coming back to life.
Las Vegas Sands' revenues collapsed even harder than Caesars' in the second quarter, dropping an astonishing 97%. Given that China is returning to normal faster than the West, Sands might not be quite as dependent on a vaccine to get its mojo back. But it would speed up the process.
- Market value: $225.8 billion
- Year-to-date return: -13.6%
Walt Disney (DIS (opens in new tab), $124.97) is a rare case. Its core business were utterly ravaged by the COVID-19 pandemic. Its theme parks were shuttered for months and even now operate at limited capacity. Furthermore, its lucrative movie business has been torpedoed thanks to movie theater closures, and even its ESPN sports networks came under pressure due to a dearth of sports programming throughout the pandemic.
It was a perfect storm. Yet Disney found a way to make very profitable lemonade out of the lemons 2020 has dealt it.
The company launched its Disney+ streaming service in late 2019, which proved to be a fortuitous coincidence. Sales of the new Netflix competitor were already strong before the pandemic reached Europe and the Americas, but the lockdowns sent subscriber growth into overdrive. Disney+ had 57.5 million subscribers by the end of the second quarter … which is close to the number of subscribers that Disney expected to have by 2024. The pandemic has brought forward four years' worth of customer adoption. The company now boasts 100 million paid subscribers across its other streaming offerings, which also include ESPN+ and Hulu.
Disney+ has become such a vital cog, so quickly, that the company recently announced a major restructuring to its media and entertainment divisions meant to accelerate its direct-to-consumer ambitions.
Here's where it gets fun.
With or without a vaccine, DIS stock was already an intriguing buy based on Disney+ alone. But DIS is one of the best stocks to buy because it's not a stretch to say that, with a viable vaccine, Disney's theme park businesses and sports businesses could be back to pre-crisis levels by next summer.
Movies might take a little longer, as production schedules have been indefinitely delayed. But with a viable vaccine, a recovery in the movie business is just a matter of time.
Charles Sizemore was long DIS as of this writing.
Charles Lewis Sizemore, CFA is the Chief Investment Officer of Sizemore Capital Management LLC, a registered investment advisor based in Dallas, Texas, where he specializes in dividend-focused portfolios and in building alternative allocations with minimal correlation to the stock market.
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