As one of the strangest states in our country, Florida is known for many things. Personally, when I think of the Sunshine State – which is not much at all – alligators are about the only thing that comes to mind. Of course, I’m being facetious. Every four years, it plays a pivotal role as the battleground state. In addition, there are several Florida stocks from which investors can choose.
Ordinarily, Florida-based publicly traded companies offer an eclectic and profitable mix for your portfolio. But that was before the novel coronavirus ruined everything. Unfortunately, just as the worst of infection rates appeared to decline, a sudden resurgence of cases appeared. As you know, the Sunshine State has been recording fresh records in daily infections. And that of course is problematic for Florida stocks.
In a perhaps surprising twist, the state known for its alligators and theme parks decided to pause its reopening. This mimics actions taken by Texas, which is decidedly conservative. Given the deep political and ideological divide in our nation, you’d expect Republican regions to support local economies over health. Instead, the opposite is taking place, which puts Florida stocks in a difficult position.
First, if red states decide that shutting down is in their best interests, Democratic strongholds will follow suit. Why shouldn’t they? More lockdowns equal greater economic pain, directly impugning President Donald Trump’s only positive talking point (recall that the May jobs report surprisingly added 2.5 million jobs).
Second, the severe rise in cases suggests that all of us should have taken mitigation protocols seriously. That puts even more pressure on businesses to enforce measures such as social distancing and wearing face coverings, inconveniences which are not helpful for revenue growth. Therefore, you should be careful about these nine Florida stocks:
- Carnival (NYSE:CCL)
- Royal Caribbean Cruises (NYSE:RCL)
- Spirit Airlines (NYSE:SAVE)
- Marriott Vacations Worldwide (NYSE:VAC)
- CSX (NASDAQ:CSX)
- Hertz Global (NYSE:HTZ)
- Embraer (NYSE:ERJ)
- The Geo Group (NYSE:GEO)
- Darden Restaurants (NYSE:DRI)
Invariably, some readers who hail from this quirky state may get upset that I’m singling out their home. To that, I can only say that it’s not my fault that so many of Florida’s publicly traded companies are levered to pandemic-vulnerable industries. So with this apology-non-apology out of the way, here are nine Florida stocks to avoid.
If there’s one company that defines the novel coronavirus, it’s Carnival. When the disease that the virus causes, Covid-19, was still a foreign entity to Americans, it was quarantined off the waters of Yokohama, Japan in a Carnival-owned Diamond Princess cruise ship. For many Floridians, Yokohama might as well be another planet. But then, the coronavirus came here and that’s about when CCL stock died.
Interestingly, Carnival technically belongs on our list of Florida stocks because the U.S. headquarters is in Miami, Florida. However, the company is incorporated in Panama. During normal times, such a move is financially advantageous due to favorable tax treatment. However, in an unprecedented crisis, it’s a huge problem. For one thing, Carnival and other cruise liners would probably not be eligible for a bailout if they had requested one.
But even in normal circumstances, this multi-jurisdictional setup causes unsettling potential liabilities, particularly for travelers. Mainly, who’s responsible when a crime occurs aboard? Further, this split jurisdiction has caused nightmares for cruise ship employees during this pandemic. That’s because they may hail from countries with inadequate healthcare services, leaving such workers stranded at sea. Clearly, this is a PR nightmare that won’t go away for CCL stock.
It’s also why I’m choosing to put Carnival front and center on my list of Florida stocks to avoid. If we have another wave of coronavirus, it just adds more problems to a mountain of dilemmas.
Royal Caribbean Cruises (RCL)
Next on our list of Florida stocks to stay away from is Royal Caribbean Cruises. Also headquartered in Miami, Royal Caribbean may give the impression that it’s an American company that follows American laws. But look at the fine print and you’ll discover that Royal is incorporated in Liberia.
If you’ve ever seen the movie Lord of War, that crazy country where the antihero protagonist ends up for much of the film is Liberia. While the nation has improved significantly from its civil wars, the brutality that occurred is unimaginable. So, if you have problems aboard a Royal Caribbean ship, that’s where you go to seek justice. Now you can appreciate why I’m skeptical about RCL stock.
But that’s just one aspect. Principally, the cruise ship industry is toxic in our new normal. As the Diamond Princess demonstrated, just one infection can cause utter chaos. If that happened again, I believe the response would be very predictable: quarantine, quarantine, quarantine. Also, imagine having to suffer lockdown in a foreign country.
Then, you must account for senior citizens’ penchant for cruising. Under normal circumstances, cruise ships offered cheap vacations. In new normal circumstances, it could be a death sentence for this demographic. Logically, you should avoid RCL stock.
Spirit Airlines (SAVE)
As if you needed coaxing, Spirit Airlines is another name among Florida stocks you should probably avoid. Back when the pandemic first struck, SAVE stock stalled and careened toward the earth. Unfortunately, just because the company specializes in discount travel didn’t save shares. When nobody wants to travel at any price, discounts simply don’t matter.
While SAVE stock has been more volatile than its rivals, it nevertheless provided a healthy return for speculators. But the surge in coronavirus cases not just in Florida but across the country is worrying for Spirit.
Of course, the first problem is that social distancing is all but impossible in a flying tube. Second, the incentive to travel declines significantly if the health risks outweigh the rewards of travel. With conditions as they are, for instance, you can conduct most business remotely. And if you’re just traveling for fun, forget it. Most non-Floridian consumers will simply opt out.
Marriott Vacations Worldwide (VAC)
Out of the Florida stocks mentioned on this list, Marriott Vacations Worldwide could end up becoming the most desperate. As a vacation specialist catering to an affluent clientele, VAC stock makes perfect sense in a bull market. But in this health crisis, which combines economic and social turmoil, Marriott Vacations makes more sense as a shorting opportunity.
Now, let me back up here – I’m not recommending that you short VAC stock. Rather, I’m merely stating that actively bearish traders may place shares in their cross-hairs. Apparently, rich people are very afraid of the coronavirus. If they weren’t, how would you explain the explosive growth of Peloton (NASDAQ:PTON)?
Another dilemma for VAC its international business. Marriott Vacations has lucrative properties in the Caribbean, Europe, Middle East and Asia. But with the U.S. as the undisputed epicenter of the Covid-19 pandemic, the international community has every incentive to ban incoming American travelers. Geopolitically as well, I don’t think there’s any love lost between the Trump administration and our global partners.
With coronavirus 2.0, the eastern side of the U.S. again finds itself disproportionately bearing the burden. And this time, the Sunshine State is the new epicenter. I don’t find this surprising. After all, this was home to the infamous butterfly ballot where in 2000, Democrats who wanted to vote for Al Gore ended up voting for Pat freaking Buchanan.
Granted, the butterfly ballot was confusing, but folks, follow the arrow! Anyways, this is a good time to bring up my concerns about CSX.
Back during the first round, I cautioned InvestorPlace readers against CSX stock due to its geographic vulnerabilities. Namely, the coronavirus was spreading throughout the east coast with incredible vigor which you didn’t see in the west coast. To illustrate my point, I charted a rough approximation of CSX’s system map.
Take a look at my map and then juxtapose it against the New York Times’ resurgent hot spots map. As you can tell, the company operates in the heart of the crisis.
Until Floridians start taking this crisis seriously, we could be looking at a long recovery period. Therefore, you may want to avoid CSX stock in the meantime.
Hertz Global (HTZ)
Hertz Global is headquartered in southwest Florida. Of course, it is. Rapidly becoming one of the train-wrecked brands of the Covid-19 pandemic, HTZ stock has been generating headlines for the wrong reasons. Declaring bankruptcy amid an almost complete shutdown of travel, Hertz took a mighty big fall. However, as with any cheap investment, you have speculators who are interested in a quick buck.
If that’s you, just know many other superior options exist. Further, Florida stocks have disproportionately suffered because they’re largely levered to the broader travel and entertainment industry. That’s not shocking to hear given that the state specializes in family-friendly vacation venues. But in a severe pandemic, these businesses tend to hurt the most, as you can tell.
Further, the idea of gambling on HTZ stock is incredibly risky because so many have lost so much money here. Before Hertz shares have a chance to fly to the moon, they’ll likely incur substantial volatility from folks looking to get back whatever they can.
Although a Brazilian aircraft manufacturer, Embraer’s U.S. headquarters is located in Fort Lauderdale. Therefore, it technically belongs on this list of Florida stocks, unfortunately. As I mentioned with Spirit Airlines, the travel industry will likely face a crisis should coronavirus cases continue to spike. Naturally, this doesn’t bode well for ERJ stock.
But Embraer faces distinct challenges should we suffer a pronounced second wave. First off, there’s the fact that Brazil ranks behind us in terms of total infections and deaths. Second, the company produces executive business jets, which will probably suffer a demand loss. With the advent and proliferation of remote work, executive travel is an easy budget item to cut, making ERJ stock riskier than usual.
Finally, on the commercial end, Embraer focuses on smaller jetliners. But the pandemic makes this business more suspect. As I stated earlier, it’s nearly impossible to maintain social distancing in an airplane. That situation is exacerbated the smaller the aircraft. Also, small planes tend to fly less-demanded routes, which are now on the chopping block.
The Geo Group (GEO)
Easily the most controversial name among Florida stocks, The Geo Group calls Boca Raton home. According to its website, Geo specializes in evidence-based rehabilitation. This is merely a code word that sophisticated private investors use to justify their position. It’s better known as a for-profit prison operator. With that clarification, you can see why I’m hesitant on GEO stock.
Ironically, it’s President Trump that probably devastated this company’s business model. While it’s easy to criticize his many strange antics, let’s give credit where it’s due. Under his administration, violent crimes have declined significantly. While that’s awesome for social stability, this of course doesn’t do any favors for GEO stock.
However, with the rise of social unrest, you’d expect GEO to regain some positive momentum. Yet this narrative hasn’t panned out for an obvious reason. Due to persistent, nationwide calls for social equity and justice, a business like Geo’s appears completely tone deaf.
That’s not to say that GEO can’t make a comeback. However, I’m worried that the temperature in the present political landscape won’t allow it.
Darden Restaurants (DRI)
Headquartered in Orlando, Darden Restaurants is an alarming example of how a narrative can reverse thanks to the coronavirus. As states began their reopening measures, I felt that DRI stock offered an outside chance for a recovery. For some time, it did just that. But with cases surging again, Darden finds itself among the Florida stocks to avoid.
It really comes down to consumer sentiment. When cases were declining from their initial peaks, many Americans spent months in quarantine or self-isolation. At some point, they just got tired of sitting at home. Going out to the restaurant for familiar cooked foods, even in takeout form, represented a small but vital step toward normalcy.
But with a second strike, that storyline for DRI stock will evaporate. Instead, Americans will again hunker down, meaning grocery stores like Kroger (NYSE:KR) may see an uptick in demand. Plus, a halting – or worse yet, a reversing – of reopening measures imposes economic risks, translating into lower revenue opportunities for Darden.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.