Prospects and considerations relating to investing in Pandemic-hit industries and sectors
Many active investors and fence-sitting investors are tempted alike, to look at and consider staking out positions in companies and industries that are hit by the Covid-19 lockdown and its unfolding impact. Some members of a Whatsapp Investment group that I contribute to and administer, had questions about the strategy of entering into Airline stocks such as UAL - United Airlines and DAL - Delta Airlines.
There is always a temptation to pick up once front line stocks that have fallen close to 52 week lows, in the hope of catching its eventual rebound and ride it through when the recovery gets underway. Some of that fancy also seems to be validated by the kind of stock price recovery that happened with UAL. UAL has rebounded more than DAL, in spite of having its profitability prospects hit worse than that of DAL.
Then there is a recent article on Seeking Alpha that suggests going long on JBLU - Jet Blue because it has a better balance sheet than most of its peers. It is also argued that it can better capitalize or leverage the bailout package that is available to it under the recently approved Fiscal Stimulus Bill (CARES Act).
Airlines is not the only stressed industry in these times of the "Great Lockdown" induced recession. There are many others such as:
Tickers in the most of the above industries and sectors appear to have attractive prices and deceptively mouth watering valuations. But deceptive is the operating word, with some of this commentary on Market Watch, providing insights why the nature of this pandemic impact and the way value has performed makes this attraction for fallen stocks more of a Value Trap, than a value bargain.
Most of the bounce in UAL relative to DAL is technical, i.e, bounce from an extremely oversold position.
The way the US Market indices bounced off from the post-COVID 19 panic lows of 2nd Half of March 2020, has selected its winners and losers among the sectors or verticals. The above COVID-19 impacted sectors are not in that list of winners.
We are likely to have better success in looking for the winners in these sectors instead:
There is always a temptation to pick up once front line stocks that have fallen close to 52 week lows, in the hope of catching its eventual rebound and ride it through when the recovery gets underway. Some of that fancy also seems to be validated by the kind of stock price recovery that happened with UAL. UAL has rebounded more than DAL, in spite of having its profitability prospects hit worse than that of DAL.
Then there is a recent article on Seeking Alpha that suggests going long on JBLU - Jet Blue because it has a better balance sheet than most of its peers. It is also argued that it can better capitalize or leverage the bailout package that is available to it under the recently approved Fiscal Stimulus Bill (CARES Act).
Airlines is not the only stressed industry in these times of the "Great Lockdown" induced recession. There are many others such as:
- Cruise Lines
- Hotel and Hospitality
- Restaurants
- Travel Bookings
- Clothing and Accessories
- Autos and Parts
- REIT's
Tickers in the most of the above industries and sectors appear to have attractive prices and deceptively mouth watering valuations. But deceptive is the operating word, with some of this commentary on Market Watch, providing insights why the nature of this pandemic impact and the way value has performed makes this attraction for fallen stocks more of a Value Trap, than a value bargain.
Most of the bounce in UAL relative to DAL is technical, i.e, bounce from an extremely oversold position.
The way the US Market indices bounced off from the post-COVID 19 panic lows of 2nd Half of March 2020, has selected its winners and losers among the sectors or verticals. The above COVID-19 impacted sectors are not in that list of winners.
We are likely to have better success in looking for the winners in these sectors instead:
- Biotech
- Pharma
- Semiconductors and their ancillaries
- Big Tech
- Cloud and Tech services
- China Stocks
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