The following post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga.
The stock market today is much different than it was back in March, when the market took its biggest dive in years.
At the time, there were many more questions than answers about how the crisis would unfold. Would there be a V-shaped recovery? Will it be more of an L-shaped trend? Can stocks make a W-pattern?
Now, nine months later, we’ve seen mostly a sharper V than anything else in stocks. The S&P, Nasdaq, and Dow recently hit fresh all-time highs within the last few weeks all while coronavirus cases are at their highest ever. But the stock market doesn’t much seem to care now that there’s a possible path to reopening ahead. Toward the end of November, we discussed travel stocks and how it was the booking companies that have benefited the most so far.
We’ve seen new trends emerge over the last few months that have helped give markets a boost and keep active traders interested. Things like renewable energy and electric vehicle stocks are gaining interest most recently. But aside from the periodic sector trends, there’s been one group of stocks to watch. These stocks are the epicenter stocks of the market.
What Are Epicenter Stocks
There’ve been millions of new traders accessing the markets in 2020. If you look at some of the stock brokerage growth statistics for 2020, some accounts cite roughly 5 million new users opening accounts on platforms like Robinhood. Many of these traders sought out to leverage what money they’d saved up in order to profit from the market sell-off in March. Aside from actually learning how to day trade, many of these newbies were introduced to an entirely different side of the economy. This was one that involved much more sentiment and speculation to drive momentum instead of fundamentals alone. It was also at this time that Fundstrat’s Tom Lee put together a thesis on epicenter stocks.
What are epicenter stocks? Put simply, these are stocks that were hit hard by pandemic restrictions. But according to Lee, they may also be some of the names to experience the biggest recoveries and/or benefit from “the new normal.”
One of the things discussed when referencing epicenter stocks is identifying a positive catalyst, and right now we have a potential vaccine. Now that Pfizer PFE & BioNtech BNTX have gained approval in the U.K. the chances are high that certain epicenter stocks could begin to move.
This week, Pfizer gained emergency approval from the U.K. government for its COVID-19 vaccine. Last month, Pfizer and BioNtech submitted an Emergency Use Authorization request to the U.S. FDA for the vaccine. And initial guidelines were released this week discussing who could receive the vaccine first.
Moncef Slaoui, Chief Science Adviser to Operation Warp Speed, explained that the path forward could see the FDA authorizing the use of the vaccine sometime this month. He told ABC’s Good Morning America that he expects “the FDA to reach a similar conclusion” as British health agencies and he hopes by “the 10th or 11th of December [the] Pfizer vaccine is approved.”
So, which companies could benefit from reopening efforts in light of both an approved vaccine and a proposed timeline? Many have turned attention to epicenter stocks. Here are six stocks that may benefit from such a scenario.
As a software technology company, the unique aspect to consider with Sabre Corp. SABR is its involvement in the global travel industry. The company’s portfolio caters to airlines, car rental companies, travel agencies, and hotels helping to manage operations like reservations, back-end revenue management, flight crew management, and even flights. Sabre also operates a travel marketplace processing travel arrangements. Earlier this week the company’s technology was implemented by Gulf Air, a top carrier in Bahrain. Croatia Airlines, GOL Airlines, and BIDTravel have all recently signed or enhanced agreements with Sabre.
Considering the SABR stock was trading as low as $3.30 in March, it’s clear that reopening optimism – specifically in the travel industry – has helped. This week, shares reached highs of $11.73. Analysts at Deutsche Bank recently boosted their price target on SABR to $12 from $9 but still have a Hold rating on the stock. With the idea that travel picks up because of a vaccine as a solution to treating coronavirus, the backbone/pick and shovel stocks shouldn’t be forgotten. In Sabre’s case, the company expects that pent up demand for travel should firmly establish a more profitable recovery from the pandemic.
If there’s one industry that’s felt the heat from coronavirus, it’s brick-and-mortar retail. COVID-19 forced many to either evolve or die, with many falling victim to the latter. The ones that have at least treaded water have taken up a brick-and-click approach. Flagship stores like Macy’s Inc M were among those companies falling hard earlier in the year as mall closures and social distancing rules prevented the masses from shopping in person.
Fast-forward to December and Macy’s stock price has bounced back more than 100% since March. Furthermore, the company has managed to more than just weather the storm. Take a look at its third quarter results. Though it still posted an EPS loss, it wasn’t nearly as much as analysts had estimated. The company further beat on sales as well with $3.99 billion for the quarter compared to $3.86 billion estimated. While there’s still likely going to be a long road ahead, Macy’s stock has reflected the vaccine optimism that so many retail stocks have begun experiencing. Some of the key revenue drivers during the quarter had to do with luxury items and things to feel more comfortable at home. Furniture, jewelry and fragrance, as well as casual apparel helped give sales a much-needed boost.
Wynn Resorts Ltd.
You can’t talk about reopening stocks without mentioning hospitality and, more specifically, casinos & resorts. Wynn Resorts WYNN shares treaded water for most of the past eight months. However, since mid-November, things have been a bit more active. Since the sell-off in March, shares are up more than 190%, and while there’s still much more to recover from that drop, the nine-month window hasn’t looked bad for the stock.
Wynn operates several luxury resorts including Wynn Las Vegas, Encore Las Vegas, Wynn Macau and Encore Macau. While Macau gaming revenues dropped in November, most casino stocks have traded higher. Even new capacity restrictions haven’t put much of a blemish on casino stocks like Wynn in light of recent vaccine headlines. If optimism remains and eventually results in looser restrictions, WYNN and other casino stocks could be ones to watch.
In fact, if you look at the VanEck Gaming ETF BJK, you’ll see the strength that the gaming sector has shown this year. Year to date, BJK is actually positive and just recently hit fresh 52-week highs. The ETF holds shares of names like Las Vegas Sands. Corp, Sands China, MGM Resorts MGM, and Caesars Entertainment, and, of course, Wynn.
Not up for traveling via plane or train? How about by RV? With coronavirus still very much a big part of our daily lives, the holiday season has seen travelers take up unique means of getting to their holiday destinations. It’s also got people figuring out new ways to enjoy recreational activities. Winnebago Industries WGO not only makes the Winnebago RV, it also manufactures Newmar and Chris-Craft branded products as well.
A Bureau of Economic Analysis report in November showed consecutive annual growth in outdoor recreation, which correlated to a positive impact on the U.S. GDP. According to the report, the sector generated $788 billion in gross output in 2019 and supported 5.2 million jobs. Things like boating, fishing, hunting, RVing, and even off-roading via things like ATVs were among the largest activities.
This trend was reflected in Winnebago’s most recent fiscal Q4 and full-year 2020 results. Quarterly revenue was up just over 39% year over year with adjusted EPS coming in at $1.45 compared to estimates of just $0.90. What’s more, quarterly sales growth from motorhomes were up over 50% from the year prior, to $301.8 million. The addition of the Newmar brand was a big growth driver for the company. Full-year motorhome sales were also up 49.5% compared to 2019, again driven by the addition of Newmar.
Boeing Co BA has experienced a storied history that didn’t solely involve pressure from the COVID sell-off. Long before that, the company had been dealing with its 737 Max jet shortcomings. Fast-forward to this quarter and Boeing could be looking at a return to service for its Max jet line. The last 20 months have seen Boeing conduct more than 4,400 hours of testing, which included more than 1,350 flights.
The European Union Aviation Safety Agency published a proposed airworthiness directive last month outlining conditions necessary for Boeing’s 737 Max jet return to service in Europe. Furthermore, Brazil’s Aviation Authority has also joined the FAA in rescinding an order to halt commercial operations of Boeings 737 in Brazil.
Positive vaccine news has also helped give the plane manufacturer a boost recently. Chatter that Ryanair is reportedly close to placing orders for more 737 Max jets has further echoed a bullish sentiment around air travel. American Airlines also said that it will hold its first civilian passenger flights on board Boeing’s Max jet soon, Reuters reported. Considering the upbeat vaccine sentiment coupled with the relaunch of the long-awaited, revised Max jet, Boeing should be one of the epicenter stocks to keep an eye on.
Aside from retail and travel, infrastructure was halted earlier this year. Social distancing measures put a stop to countless projects. With President-Elect Joe Biden taking initiatives involving increased infrastructure spending, chances are the epicenter recovery will involved infrastructure strength. Biden’s stance discusses the need for “millions of construction, skilled trades, and engineering workers to build a new American infrastructure.”
Keeping this in mind, Biden has set a target of $2 trillion in accelerated investment planning to deploy this during his term. U.S. Steel’s X focus on secure and sustainable operations via its mini-mill, “Best of Both” initiative has established a stronger base for the company to work from. The company continues restarting numerous operations including a recent restarting of its blast furnace at its Indiana mill in addition to restarting its Minnesota Ore Mine.
Assuming trillions are set to be spent on infrastructure, U.S. Steel could become a benefactor of such an initiative. Meanwhile, new construction and industrial projects could compound the company’s momentum heading into 2021.
Neither the author of this post nor Pennystocks.com have a position or financial relationship with any of the stocks mentioned above.
The preceding post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. Although the piece is not and should not be construed as editorial content, the sponsored content team works to ensure that any and all information contained within is true and accurate to the best of their knowledge and research. This content is for informational purposes only and not intended to be investing advice.
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