Amid this summer’s economic pain, continued cases of COVID, and lockdown restrictions, the outdoors have been a bright spot. For individuals, it’s been where we’ve been able to see friends and family without too much risk of catching COVID.
For bars, restaurants, and cafes, the open air has allowed them to serve customers and take in a little money.
Now, fall is settling in and temperatures are dropping, especially in northern states, it’s going to make the outside much less appealing. COVID cases are already resurging and as people move indoors it will only make it worse. This is going to have a huge impact on businesses.
In fact, four sectors are going to be hit hard this fall and winter. And if you aren’t on guard, your portfolio could take a hit, too. Here are some sectors and stocks that look particularly vulnerable (and a couple I like, as well).
COVID’s Fall Wave is Already Here
Back in spring, experts were hoping that we’d be able to clamp down on COVID hard enough to keep it manageable. Some European countries did. But here in the U.S., cases never came down as much as experts said was needed before fall came.
Now, COVID is on the rise again, both here and in much of Western Europe. Take a look at this chart of daily new confirmed COVID cases per million people:
As you can see, America’s initial COVID surge, when adjusted for the number of people in America, wasn’t as large as Spain’s, but comparable to Italy’s. But after that initial surge, Western Europe managed to push COVID cases down over the summer through strict measures.
Here in the U.S., cases slowly drifted down until late June, when they surged again.
Now that colder weather is setting in across the Northern Hemisphere — France, Spain, the UK, and America are all seeing another rise in cases. Germany and Italy’s cases are also rising, but much slower. Epidemiologists think this comes from a combination of people growing tired of COVID restrictions combined with colder weather pushing people indoors.
And as we know, the COVID virus spreads much easier indoors. Unfortunately, we never pushed our cases down, so we’re starting from a higher number than Western Europe. Now we may be in for another large spike in COVID cases, and it could get as bad as the one last spring. The silver lining for now is that the mortality rates are staying rather low compared to the spring surge. But even with that, this fall resurgence is bad news for many of the bars, restaurants, and cafes that have managed to stay afloat over summer by using outdoor seating, especially in northern states.
Even in some warmer states where outdoor seating is possible all-year round, another COVID surge will still drive down business in bars and restaurants. In short, the lifeline that has kept the sector afloat over summer is coming to an end. While there aren’t that many bar and full-service restaurant stocks, this will hit the beverage industry that supplies bars and restaurants hard. And with sports stadiums still mostly closed or at 20% capacity at best, alcoholic beverage companies are going to continue to struggle.
The stock to avoid, short or buy puts on here is Molson Coors Beverage Co. (TAP), America’s second-largest and the world’s fifth-largest brewer. Their ever-popular Coors Light and Miller Lite brands are very sports-gathering oriented, and the company’s chart shows that traders believe that the company will continue to struggle:
But beer isn’t the only thing that will change…
Nowhere to Spend Money Amid Cold and COVID
Bars and restaurants are only one sector that has benefitted from summer. Outdoor shows and events have happened in places where social distancing was possible. Crafts fairs and farmers’ markets were possible because the weather allowed them to be held outside, and COVID rates were low. The brave even took up air travel over the summer, as you can see in this chart of commercial air traffic in the U.S.:
Source: https://www.flightradar24.com/data/statistics
As you can see, there’s been a clear uptick since the March low. But flight numbers never recovered even close to last year’s levels, and they look to be falling rapidly again.
The reality is probably a bit worse than this chart makes it seem, however. It measures both passenger and cargo flights together. That means the drop in passenger flights may be partially hidden by rising numbers of cargo flights.
In any event, another spike in COVID combined with colder weather will end even this minor comeback. The same is true for events, shows, movie theaters, casinos, and much of the rest of the entertainment, hospitality, and travel industries.
A good stock to avoid, and potentially buy puts on, is US Global Jets ETF (JETS). This ETF tracks airlines, airports, and terminal service companies, which will all have a long road to recover and could get hit hard with a renewed COVID surge. And if we do get more airline bailout money in a congressional stimulus package, that temporary jump up in airline stocks would be a great place to exit, short or buy puts.
Meanwhile, theme-park only stocks such as SeaWorld Entertainment Inc. (SEAS), Cedar Fair LP (FUN), and Six Flags Entertainment Corp. (SIX) make for excellent targets for shorts right now.
As you’d imagine, American consumers with nothing to spend money on will spend less money. And the reality of the slow return to amusement parks was highlighted by Disney’s announcement of 28,000 layoffs in their amusement parks division just a week ago. That’s going to have a carryover effect on the whole amusement park sub-sector.
Don’t Believe in Energy’s Bounce
Less money being spent on travel, events, and other non-essentials is going to have similar effects on the economy as what we saw in March. In particular, a recovery in oil is not likely. BP even put out a white paper suggesting that peak oil demand has already been hit, as I wrote about in an earlier Van Tharp Institute newsletter article.
Oil demand will remain low as many commuters make part-time or full-time “work from home” a reality, crushing commuter demand. And with holiday air travel also likely to see a huge drop, the integrated oil companies will continue to flounder and fall. Shorts and puts in Occidental Petroleum (OXY) and Exxon Mobile (XOM) have worked well over the past month and with today’s oil inventory build, should continue to do so.
And of course, with colder weather, brick-and-mortar stores are going to have an even harder time finding customers…
The Have-Nots of Retail Can’t Catch a Break
Retail sales in America are already struggling. They were up by just 0.6% in August, which is half of July’s number and much lower than the expected 1%. More COVID cases and colder weather will only make that worse.
That’s going to make the have-nots of retail take another hit, while the haves get another boost. Dollar General Corp. (DG) and Best Buy Co. Inc. (BBY) have already shown they’re haves, with success after success amid the COVID pandemic. I’d look at them as prime targets for buying on dips.
But for the have-not department stores like Nordstrom Inc. (JWN) and Macy’s Inc. (M), even the upcoming holidays offer little hope. Now is not the time to bottom fish for these mall-centric stores. Short-selling any pop in price is a better strategy.
I hold little hope for even modest vaccine deployment by the end the year. But that’s the only news that would cause me to rethink this COVID-driven directional analysis.
As always, I love to hear your thoughts and comments. Send them to me via email: drbarton ”at” vantharp.com
Great Trading, stay safe out there, and God bless you,
D. R.