Lyft Stock is One Name Likely to Benefit From Fear of Human Contact

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Lyft (NASDAQ:LYFT) stock has lost about 40% of its value since its February high, and many investors and pundits have left the shares for dead. But within a few months, the shares are actually likely to get a big boost from the social distancing trend.

Lyft Stock is One Name Likely to Benefit From Fear of Human Contact
Source: Roman Tiraspolsky / Shutterstock.com

At the moment, people in America’s largest cities aren’t going anywhere. Offices, restaurants, movie theaters, bars and clothing stores are all closed.

But in most cities, that will change sooner than later. The economy will open back up, and many workers will return to their offices. Meanwhile, millions of people in cities will go back to eating in restaurants and watching movies.

Abandonment of Mass Transit is Likely to Help Results

In many cities and suburbs around the country, Americans have previously relied on trains and buses to get to work. A smaller number of people have used mass transit to get to restaurants and other recreational activities.

But due to the novel coronavirus crisis, most Americans are likely to avoid mass transit. Some Americans could, as I noted in my recent column on Ford (NYSE:F), buy new cars.

But others may not be willing or able to make such an expensive, long-term commitment. A majority of those people will probably decide to use Uber (NYSE:UBER) and/or Lyft to get to where they need to go. When investors see that trend gathering steam, they will rush to buy Uber stock and Lyft stock, likely sparking the two names to rally meaningfully.

Driving More Than People

As I’ve noted previously, Lyft is partnering with Alphabet’s (NASDAQ:GOOGL) Waymo, which appears to be the world’s leader in the self-driving car space. My recent Ford column noted that Prith Banerjee, the CTO of Ansys, a simulation software company, expects the novel coronavirus outbreak to greatly boost demand for autonomous vehicles. Specifically, he believes that autonomous vehicles will be used to transport people as well as food and medicine.

Due to its partnership with Waymo, Lyft will, by the end of the year, benefit meaningfully from increased demand for autonomous vehicles from consumers looking for ride-sharing services. In the wake of the COVID-19 pandemic, consumers will greatly value the ability to be driven from place to place without having to interact with a human driver.

Meanwhile, Lyft is also looking to take advantage of higher demand for the delivery of food and medicine amid the epidemic. Specifically, on April 15, the company launched its “Essential Deliveries” initiative. Lyft described the program as:

“a new pilot initiative where government agencies, local non-profits, businesses and healthcare organizations can request on-demand delivery of meals, groceries, life-sustaining medical supplies, hygiene products and home necessities — all delivered by Lyft drivers.”

With many people unable or unwilling to leave their homes, there is likely to be a great deal of demand for the service. While the program will utilize human drivers for the time being, I predict that it will, by the end of the year, utilize at least some self-driving vehicles.

And of course by providing ride-sharing and delivery services using autonomous vehicles, Lyft will greatly increase its profit margins. That, in turn, should boost the company’s results and provide Lyft stock with an important, positive catalyst.

Bottom Line on Lyft Stock

Lyft stock is not likely to go bankrupt because it has low fixed costs, as its main expense is its drivers who do not have to be paid when they’re not working. Further, as of its most recent reported quarter, the company had $2.59 billion of cash and debt of only $476 million.

Lyft is likely to benefit from riders switching to its service from mass transit. It should also get a boost from its delivery initiative and its utilization of autonomous vehicles. Given these points, I recommend buying Lyft stock in the wake of its huge pullback.

Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s leading business daily, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer. As of this writing, he did not own any of the aforementioned stocks. 

Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been SMCI, INTC, and MGM. You can reach him on Stocktwits at @larryramer.


Article printed from InvestorPlace Media, https://investorplace.com/2020/04/lyft-stock-is-one-name-likely-to-benefit-from-fear-of-human-contact/.

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