Checking In On the Pandemic Winners and Losers

A big theme in the stock market this year has been pitting the "pandemic winners" versus the "pandemic losers"... For the majority of the year, the inclination has been to sell the "pandemic winners" – aka the stocks that got a boost from the initial lockdowns and more extended social-distancing measures – and buy the […] Not rendering correctly? View this e-mail as a web page [here](. [Empire Financial Daily] Checking In On the Pandemic Winners and Losers By Berna Barshay A big theme in the stock market this year has been pitting the "pandemic winners" versus the "pandemic losers"... For the majority of the year, the inclination has been to sell the "pandemic winners" – aka the stocks that got a boost from the initial lockdowns and more extended social-distancing measures – and buy the "pandemic losers," the stocks that were crushed by the lack of mobility and avoidance of crowds that dominated 2020. As soon as vaccinations became available, travel started picking up, and municipal and state restrictions on activity began to fall away, making pandemic recovery stocks market leaders. The "sell the pandemic winners/buy the pandemic losers" trade was not always a smooth ride. This trade faced its share of bumps along the way, just like putting an end to the pandemic has. When the delta variant of the coronavirus flared up over the summer, for example, many of the recovery stocks which had been so strong in the early months of the year took a dip. But the construct of "sell the pandemic winners/buy the pandemic losers" oversimplifies what has happened. While this trading theme has largely been a winner this year, there are some pandemic winners that are still going strong. There are also pandemic losers where enthusiasm over the future has been more muted. Last week, visual data site Chartr pulled together nine stock charts to summarize what's going on with the pandemic winners and losers... Source: Chartr Chartr divides these stocks into three groups... To the category of "the good," it assigns online marketplace Etsy (ETSY), online contract software provider DocuSign (DOCU), and video conferencing site Zoom (ZM), clearly the poster child of pandemic winners. ZM shares are obviously well off their recent highs, but up approximately 200% since the beginning of 2020 – it's hard to argue that the pandemic wasn't a very good thing for Zoom. These companies have one thing in common – they all had very useful products in place before the pandemic, but the challenge was getting broad enough customer adoption. Even if we're sick of Zoom, there are few people who would argue that it isn't really handy in some situations, and I think most of us will still be using it – albeit on a more limited basis – when the pandemic is definitively over. Similarly, most people who have used DocuSign to finalize legal agreements have no desire to go back to when you had to drag yourself across town to sign a few pieces of paper. As for Etsy, it always had a lot of unique and desirable items for gifting, home decorating, or throwing a party... but millions of potential customers didn't know it existed until [they had to run to it to find face masks]( back when those were scarce. There are also other cohorts of pandemic winners that are exhibiting durability that Chartr didn't touch on. One company I would put in that camp is retailer Target (TGT), [where years of investment in e-commerce and omnichannel capabilities, paired with years of investing in its grocery department, finally paid off](... TGT shares are up more than 90% since the beginning of 2020, more than twice the performance of the S&P 500 Index. Another group of pandemic winners that has shown resilience, but has its share of doubters that strength can persist, are home furnishing stocks, with William-Sonoma (WSM) and Restoration Hardware (RH) showing no signs of slowing down...  WSM and RH shares are up about 160% and 175%, respectively, since the beginning of 2020, more than quadruple the return of the S&P 500. --------------------------------------------------------------- Recommended Links: [Buy this $9 'driverless car' stock immediately]( A man who has handed us two different 10-baggers says this tiny stock could become the most lucrative we'll ever share. It's a new kind of company with almost no revenue, no product, and no employees that could 10X your money if you get in immediately. [Click here for a FREE special report](. --------------------------------------------------------------- [These EV stocks are soaring higher than Tesla]( Few people are paying attention to the little-known EV stocks soaring up to 30%, 100%, and almost 200% higher than Tesla... [Here's the list](. --------------------------------------------------------------- In the category of "the bad, then good," Chartr places online travel agent Expedia (EXPE), concert promoter and Ticketmaster parent Live Nation Entertainment (LYV), and home-rental site Airbnb (ABNB)... I think Airbnb belongs more in the first group. While the company did take a hit in the first months of the pandemic, [as soon as the lockdowns of spring 2020 were over, the company recovered in a hurry](. By the summer, it was off to the races for Airbnb. Since the company didn't go public until December 2020, much of that early volatility occurred out of the market's eye. But what we could see, even before it was public, was that the pandemic provided a great mechanism to recruit new consumers. People who wanted to avoid public spaces – including lobbies and shared elevators – flocked to Airbnbs for summer vacations in 2020. Once they came, they learned the many ways in which Airbnb can be a superior experience to traditional hotels. Like with DocuSign and Etsy, customers initially came because of the pandemic, but they stayed because they had discovered a great product. As for Expedia and Live Nation, both had their businesses crushed by the pandemic, and their comeback – at least in terms of profitability – is just starting. Expedia went from making $6.15 in 2019 to losing $8.78 in 2020. This year, it will make less than a dollar – far from a full recovery. Live Nation looks similar but worse. It made $0.14 in 2019, then lost $8.17 in 2020. This year it will lose a lot less – but analysts still estimate a $2.71 loss. Despite earnings being slow to recover, both recovered their stock prices – and then some – quickly. Both EXPE and LYV shares are about 50% higher than where they started in 2020. Both have been strong in 2021... EXPE shares are up 23% year to date, and LYV shares are up 46%. This is despite earnings expectations drifting lower over the course of the year. At the beginning of 2021, analysts expected Expedia to earn $0.95. That expectation has since drifted down to $0.61, off about 36%. Expectations also drifted lower for Live Nation, where the 2021 loss was estimated at $1.93 at the beginning of the year but now looks to be higher at a loss of $2.71. The earnings recovery is taking a bit longer than expected at both these companies. But investors are giving Expedia and Live Nation a pass because their challenges are viewed as transitory and are certain to go away when COVID-19 does. Investors believe these are great businesses in normal times and that both companies have the balance sheets to get through this rough patch and will come out stronger on the other side. Hope does not spring as eternal though for the airlines that Chartr deemed "the ugly"... The whole travel industry clearly took a huge hit with the pandemic, but while investors have rewarded Expedia with a higher valuation than it had pre-pandemic... American Airlines (AAL) and Delta Air Lines (DAL) both sit about 40% below where they entered 2020. Some of this can be explained by their balance sheets. Airlines are incredibly capital intensive – the opposite of an asset-light company that lives on the Internet, like Expedia. Both American and Delta have had to load up on debt to make it through the tough times, which has led to more of these companies being owned by the bondholders than the stockholders. You can look at the situation with the airlines as the glass is either half empty or half full. If you like recovery names – they have a lot farther to go in their comebacks. But high leverage is an albatross in a downturn, and these companies are loaded with debt. If you want to play an airline recovery, I will point you to debt-free Southwest Airlines (LUV) over American or Delta. Southwest also has the advantage of having much less exposure to business travel, which may never reach prior peaks, and no exposure to international travel, which is just very slow to come back. The final stock that Chatr puts in its "ugly" pile is home fitness company Peloton (PTON)... Peloton is a weird one. Like Etsy, DocuSign, Zoom, and Airbnb, the pandemic provided the ultimate recruitment event for the company. Like Zoom, PTON shares are way off their highs, but they still trade a lot higher than they did pre-pandemic... PTON shares are almost 60% since the beginning of 2020, a healthy outperformance versus the S&P 500, up around 44%. But at one point, the stock was up almost 500%... so this has been the mother of all drawdowns since the beginning of the year. Back in January, [when the stock was $159.75, versus the current quote of $45, I wrote](... PTON shares probably fully reflect the company's bright future at this point and could see a pull back later in the year, as Peloton catches up to its backlog of orders and investors look to post-COVID recovery plays and sell some of the big winners of the pandemic... which the stock clearly was. I sure was right about a pullback coming... It came more swiftly than I expected, and it has been severe. Some would argue that I got it wrong about the company's "bright future," though. Deconstructing what is going on at Peloton would be a whole other piece... and will be at some point in the future. For now, suffice to say Peloton was one of the pandemic's biggest winners, yet also one of the pandemic recovery's biggest losers. In the mailbag, readers react to Monday's essay on Black Friday and retail thefts, and one offers an interesting tip... Do you think any reigning pandemic winners like Etsy, DocuSign, Airbnb, Zoom, Target, Williams-Sonoma, and Restoration Hardware are still doomed to roll over and give up their pandemic gains? Do you think recovery names have more to go, or have some gone too far, too fast? Are there services or products that you tried for the first time during the pandemic that you will stick with long after it's over? Share your thoughts in an e-mail by clicking [here](mailto:feedback@empirefinancialresearch.com?subject=Feedback%20for%20Berna). "Hello, These store robberies must be not only traumatizing for employees, even if there was no violence as long as you stood out of the way, but they also must be demoralizing. A store employee, standing 8 hours on his/her feet, may bring $120 home per day... and some guys just pop up and steal the value of two weeks of work in a minute, without consequences (so far, but the laws in San Francisco capping shoplifting at $950, it may last a while)." – Fabian H. Berna comment: I'm no lawyer, but once there is a crowbar and the threat of violence, I think it goes from shoplifting to armed robbery. I'm not sure what the charges are, but at least six people have already been arrested in conjunction with the robbery at the Louis Vuitton store in San Francisco's Union Square. "I just bought more clothes than I've bought in a year at [Gap's (GPS)] Banana Republic, 50% off!. It asked if I wanted to Rakuten, but I declined – now that I read your post maybe I should have enrolled. I bought a few things on Amazon (AMZN) – it's a terrible shopping experience – not curated, but quick delivery and easy returns. "Happy Holidays!!! "P.S. I was by a Nordstrom Rack in Emeryville and noticed their windows boarded up – at Rack! The discount brand to Nordstrom (JWN). Unbelievable and Ulta (ULTA) next door not boarded up." – Jeff L. Berna comment: Jeff, it is indeed wild that Nordstrom Rack is boarded up – hardly a luxury target like the others. That said, I have seen pictures on Twitter (TWTR) of some decidedly nonluxury stores in downtown San Francisco all boarded up, including Inditex's (ITX.MC) Zara and Rack peer, TJX Companies' (TJX) Marshall's. "Many of your readers may benefit from investing in U.S. Treasury 'I' bonds. They currently pay 3.54% interest. You (and your spouse) may purchase $10,000 per tax year. Buy $10,000 now and again each following January. They act much like a certificate of deposit ("CD"). After the initial holding period (6 months or a year?), you may redeem them at any time with a penalty of 3 months interest. Nothing better or safer out there." – Kent M. Berna comment: Thanks for the tip, Kent. I had not heard of these. That rate is too good to be true these days. It makes sense that the Treasury limits you to one $10,000 investment per year. I looked up the terms... You have to hold the bonds for a one-year minimum. After that, you can redeem during the next four years for a small penalty (the forfeiture of the previous three months' interest). After five years, there's no penalty for early redemption. You can learn more about [them here on the Treasury's website](. Regards, Berna Barshay December 1, 2021 If someone forwarded you this e-mail and you would like to be added to my e-mail list to receive e-mails like this every weekday, simply [sign up here](. © 2021 Empire Financial Research. All rights reserved. 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