As novel coronavirus vaccines continue to roll out, we are turning to what may be the last chapter in the glass-half-empty, glass-half-full narrative that has surrounded the Covid-19 pandemic. And that chapter can’t come to a conclusion fast enough for several epicenter stocks that felt the brunt of the pandemic.
The term “epicenter stocks” was coined by Fundstrat’s Tom Lee. According to Lee, these companies suffered the most at the onset of the pandemic. However, they would also be the stocks that had the most to gain in a post-pandemic world.
This list of stocks includes hotels, airlines and cruise lines. And sure enough, a slew of new data is illustrating the glass-half-full narrative for these stocks. The U.S. Bureau of Labor Statistics reported that the leisure and hospitality sector saw the strongest job gains in February. Just the month before, the sector was losing jobs. And on a year-over-year basis, employment is still down 20%.
But the glass-half-empty crowd is not done. According to the American Hotel and Lodging Association, only 34% of Americans feel comfortable staying in a hotel at this time. And many of those surveyed are suggesting they won’t feel comfortable until the majority of Americans have been vaccinated.
But for now, let’s bet on a little optimism. So here are nine epicenter stocks to buy or put on your watch list.
- JetBlue Airways (NASDAQ:JBLU)
- Southwest Airlines (NYSE:LUV)
- Marriott (NASDAQ:MAR)
- MGM Resorts International (NYSE:MGM)
- Wyndham Hotels & Resorts (NYSE:WH)
- Norwegian Cruise Lines ()NYSE:NCLH
- Starbucks (NASDAQ:SBUX)
- Universal Display Corporation (NASDAQ:OLED)
- EVI Industries (NYSEAMERICAN:EVI)
JetBlue Airways (JBLU)
The first sector to look at is the airlines. And the first of the epicenter stocks to look at is JetBlue. The airline industry started to recover during the summer. But with the vaccine rollout happening in earnest, it seems like time to bet on a more meaningful recovery in airline stocks.
JBLU stock is one of those leading the way. It’s up 44% since the beginning of the year. And the same three reasons that I wrote of this summer still apply. First, although more states are beginning to fully reopen, Florida enjoys a first-mover advantage of sorts, and JetBlue is well positioned to cover the state. In June, they announced plans to launch 30 new routes, many to the Sunshine State.
Second, the company has little exposure to Boeing (NYSE:BA) and its Max jet. This advantage will evaporate over time, but timing is everything and so for now, I’ll put this in the win column for JBLU stock.
And finally, JetBlue doesn’t have to change its pricing strategy. Some consumers are sitting on a pile of cash coming out of the pandemic. However, others will be looking to get away on a much tighter budget. JetBlue’s reputation as a low-cost carrier will allow them to accommodate these customers without eating away at earnings.
Southwest Airlines (LUV)
The other airline stock I suggest taking a look at is Southwest Airlines. Like JetBlue, Southwest covers Florida well. It recently expanded into its 10th location. The airline also recently announced that it would initiate flights to Myrtle Beach, South Carolina; Eugene, Oregon and Bellingham, Washington, in 2021. And all of this is in addition to the company expanding into 17 new airports since the beginning of the pandemic.
Another similarity between Southwest and JetBlue is that neither is reliant on international flights. While it’s reasonable to expect domestic air traffic to increase significantly, the status of international flights is less certain.
And Southwest entered the pandemic in reasonably good financial shape. However, as the calendar turned to 2021, it appeared that Southwest’s string of 49 years without having to furlough workers was about to come to an end. But with money coming from the soon-to-pass stimulus package, that streak will continue.
LUV stock is up 30% in 2021, but it may be a little overvalued at the moment. And the stock is nearing the upper range of current price targets. However, as the economy reopens, those targets are likely to be adjusted higher.
The next three epicenter stocks on my list come from the hotel sector. The first on the list is Marriott. Early on in the pandemic, I felt the strength of the Marriott brand would make the hotel chain a solid choice as a post-pandemic buy. I also believe that luxury hotels may do a better job of capturing the pent-up demand that is ready to be unleashed.
That conviction was put to the test as Marriott traded in a tight range for much of 2020. But as vaccine optimism emerged, MAR stock has taken off. It’s now trading slightly above its pre-pandemic levels. And this is happening despite revenue coming in at approximately 50% less in 2020 than in 2019.
Is it too far too fast? The company did layoff 17% of its corporate workforce in October 2020. And Marriott itself is not forecasting a return to pre-pandemic levels until 2022 at the earliest.
This seems to be the opinion of analysts who give the stock a consensus “hold” rating. Right now, the analysts’ price target is forecasting that the stock may fall back in the near term. However, the company’s revenue and earnings continue to improve.
MGM Resorts International (MGM)
The second hotel stock that I look at as an epicenter stock is MGM Resorts International. The reason that I like MGM is because it’s not a pure-play hotel stock. MGM gives investors exposure to the gaming industry via its network of casinos. And with those casinos comes exposure to the red-hot sports betting sector. While only 18 states have legalized sports betting, more states are racing to create ballot initiatives.
The pandemic hit MGM particularly hard because the company had just launched BetMGM, its mobile betting app. The company’s network of casinos started to open in June, but the company is still not seeing business as usual.
However, it’s logical to think that Las Vegas will be a popular destination for some of the pent-up demand that is bound to be unleashed. And even if gamblers don’t travel to Vegas, they will likely be visiting MGM’s other properties, which makes MGM stock a solid bet.
The last of the hotel stocks that I put on this list of epicenter stocks is Wyndham Hotels & Resorts. The company’s revenue was approximately 35% lower on a year-over-year basis. However, that’s not the worst news that investors could have received. Particularly since this is not the only quarter that Wyndham overperformed during the pandemic.
However one of the reasons I like Wyndham is as a hedge on MAR stock. Wyndham operates more than 9,000 properties and its portfolio includes value chains. This will be important because, as we know, not every American is coming out of this portfolio with more savings than they had going into it.
For these families, the desire to travel may likely have to come on a budget. And that’s a strong catalyst for WH stock. In fact, the company reports that approximately 78% of its total rooms are geared toward the lower-priced and midscale categories. And the company is not as reliant on the business traveler.
Norwegian Cruise Lines (NCLH)
In a recent discussion of cruise lines, I assessed Norwegian Cruise Lines as the one cruise line stock I might invest in if I could only invest in one. At the time I wrote that article, NCLH stock was trading at its lowest level since it began publicly trading.
The stock is slightly above that level now, but it still looks like it has a lot of upside. And one reason I believe that is because the company fell further than other cruise lines such as Royal Caribbean (NYSE:RCL) and Carnival (NYSE:CCL). And Norwegian is coming off a quarter in which it delivered an earnings report that was noticeably less bad than its competitors.
In terms of epicenter stocks, you may want to keep Norwegian on your watch list at this time. The cruise ship relaunch will not happen all at once. Many cruise lines will not have their entire fleet in operation until 2022. And the same may be true with Norwegian. However, after borrowing up to $3 billion to boost its cash reserves, the company can be patient, and so can you.
Starbucks has been a great stock during the pandemic. In fact, SBUX stock is up 42% over the last 12 months. So why does it make the list as one of the epicenter stocks for 2021. In a word – expansion. If you want to be more specific: international expansion.
At the company’s recent Investors Day, Starbucks made it clear that they are keeping the pedal to the metal. The company is planning to build more than 20,000 new locations by 2030. That will increase the company’s total number of stores to 55,000. One of these stores was just built in a town north of me, and I can confirm that business is good. But the company is “only” supposed to expand its U.S. footprint by about 3%. The real growth would seem to be coming in China.
Starbucks has approximately 4,700 locations in China. But beginning next year, it is projecting growing the number of stores at a double-digit pace.
Universal Display Corporation (OLED)
Like Starbucks, Universal Display Corporation has weathered the pandemic quite well. OLED stock is up 35% largely on the strength of its relationship with Apple (NASDAQ:AAPL). Universal Display makes the technology (and owns the parts and patents) that, among other things, allows the iPhone 12 to have its thin screen.
That growth should continue as will Universal’s relationship with Apple. But the reason the company makes the list of epicenter stocks is because it makes products for the display and lighting industries. Business travel is likely to remain soft in a post-pandemic world, but it’s likely that exceptions may be made for large corporate events and trade shows. All of which will require the company’s energy-efficient lighting products.
Which brings me to my final point. OLED stock should benefit as companies will continue to look for energy-efficient lighting products. And the company’s products have already been proven to have applications in trending industries, such as the automotive and aerospace industries.
EVI Industries (EVI)
The last of our epicenter stocks to consider is EVI Industries. Year-to-date, the little known small-cap stock is only up a little more than 12%. However in the last 12 months, EVI stock has soared more than 62%.
EVI distributes commercial laundry and dry cleaning equipment, industrial boilers, along with related parts and technical services. The Miami, Florida-based company is well positioned to benefit as the company’s products will be needed by hotels, motels, restaurants, bars and cruise ships. EVI also has many professional sports franchises as customers.
EVI Industries delivers essential products that will remain in high demand as the pandemic ends. It’s not the most exciting stock, and it doesn’t pay a dividend. Still, EVI’s revenue and earnings have held up during the pandemic, largely due to the fact that the company also services the hospital and nursing home markets. And the stock price reflects that. EVI has made up its entire pandemic loss and is in fact trading higher than it has nearly 18 months.
On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for Investor Place since 2019.