While virtually every sector suffered a massive decline in business activity, the most conspicuous devastation occurred in the travel industry. According to the U.S. Bureau of Transportation Statistics, air passenger revenue miles dropped a staggering 96% between February and May of 2020. At the time, very few investors — if any — were thinking about stocks to buy in this market segment.
To be fair, air passenger miles are still deflated relative to historical norms. However, the Covid-19 vaccine rollout, a transition in presidential power and general acclimatization to the novel coronavirus have contributed to the recovery process. But what makes the travel industry and related businesses ideal stocks to buy is a potentially groundbreaking announcement.
President Joe Biden’s administration announced it opened U.S. land borders with Canada and Mexico to fully vaccinated travelers on Nov. 8. Simultaneously, this action lifted one of the federal government’s most draconian travel restrictions and fostered the development of a new vetting process for entry. While many questions remain, the broader narrative is appealing for travel stocks to buy.
It’s a massive move by the White House because tourism is a vital component of the economy. Annually, Americans take 2.29 billion domestic trips, while incoming international visitors number 79.6 million.
In 2019, both domestic and international travelers spent $1.1 trillion in this country. Frankly, we need that money. Not only have the airliners been devastated, but several downwind beneficiaries have also suffered steep losses.
Also, it’s worth pointing out that President Biden’s approval rating has sunk to its lowest point since taking office. Historically, this bodes poorly for the administration unless it can juice up the economy. Reopening the borders is a significant first step, which should lift these stocks to buy.
- Pfizer (NYSE:PFE)
- Quest Diagnostics (NYSE:DGX)
- 3M (NYSE:MMM)
- Southwest Airlines (NYSE:LUV)
- Disney (NYSE:DIS)
- MGM Resorts (NYSE:MGM)
- Hertz (NASDAQ:HTZ)
As with any opportunity in the new normal, you’ll want to be careful with the reopening thesis. While no one should panic, Covid-19 cases are rising again in most states. That could complicate underlying circumstances, necessitating a conservative approach with these stocks to buy.
Stocks to Buy: Pfizer (PFE)
If I may be blunt, I was hoping I would be done mentioning vaccine-related stocks to buy. With new infections substantially down from their summer peak, it appeared the worst may be behind us.
And I want to be clear: that may still be the case. However, as I mentioned above, cases are on the rise again ahead of the cold season.
By logical deduction, we should gird ourselves for the possibility of more infections, hospitalizations and, sadly, deaths. It’s also not out of the question that some deeply impacted jurisdictions may impose stricter mitigation measures.
But that cynically supports Pfizer, which has taken the lead in the Covid vaccine rollout. Plus, with more visitors incoming, this dynamic alone incentives taking the jab.
Additionally, I believe the lingering threat makes it more difficult to dismiss Covid as a conspiracy theory. Thus, it’s possible that even the vaccine-hesitant could consider receiving the solution if the winter spike is particularly bad.
Quest Diagnostics (DGX)
Arguably, most analysts were not eager to discuss Quest Diagnostics. But the stock enjoyed a very strong showing up until early September. Roughly speaking, this trajectory coincided with the rise in new Covid-19 infections. However, cases quickly declined in the early days of September, which also considerably deflated DGX stock.
Look, even if the company’s Covid-19 testing kits make fundamental sense, the public has grown tired of various restrictions. As I mentioned in an interview with CGTN America anchor Rachelle Akuffo, Americans incurred a lost year in 2020. They don’t want to go through the same trials again.
The sentiment is understandable. But coronavirus cases are unfortunately on the rise, as are DGX shares. With the winter probably bringing much colder-than-normal weather, you may want to add Quest to your list of stocks to buy.
Also, the opening of land borders with Canada and Mexico will surely fuel this potent mix. To better control the influx of people, diagnostics will be necessary, thus bolstering DGX.
Stocks to Buy: 3M (MMM)
Back when the coronavirus pandemic made its tragic entry into the U.S., 3M found itself at the center of a political firestorm. Basically, the company clashed with the previous White House administration over its production of N95 masks. Now, the situation was more nuanced because 3M had contractual obligations to fulfill. But optically, the issue was an ugly mess.
With time, the firestorm faded. As I mentioned, Americans suffered from a lost year in 2020. Seemingly, even the animus stemming from all the issues associated with the pandemic has also slipped into the background. Today, you can walk into a major hardware store and find 3M’s N95 masks. They might be pricier than usual, but you can find them.
But with more people traveling and an uptick in new infections, that circumstance might not be the case moving forward. We’ll have to see how bad the surge in Covid-19 becomes, both in terms of spread and health impact. If the infections do turn out poorly, don’t be surprised to see MMM stock become a cynical buy (again.)
Southwest Airlines (LUV)
Shifting over to travel stocks to buy, speculators or risk-tolerant investors may want to consider adding a modest position in Southwest Airlines to their portfolio. Obviously one of the companies initially hit the hardest by the coronavirus, Southwest — along with the entire airliner industry — has been desperately attempting to claw back from the abyss.
Certainly, the improved public sentiment for travel is a huge positive. Early on in the crisis, no one wanted to be stuck in a flying tube with strangers if they could help it. Today, packed flights are the norm.
No, it’s not the most comfortable of circumstances. However, being away from your loved ones for a year or longer is a great motivator to overcome fears.
Also, I think it’s worth pointing out that inflation has really cut into household savings, particularly with gasoline prices skyrocketing. Thus, consumer sentiment dropped to a 10-year low, meaning that customers are more likely to be drawn in with discounts or low fares.
That’s exactly what Southwest specializes in, making it an attractive play for stocks to buy in an otherwise still-challenging environment.
Stocks to Buy: Disney (DIS)
Having the benefit of hindsight, I have the privilege of saying Disney still represents a long-term opportunity despite its recent fallout. As followers of the Magic Kingdom will know, the entertainment giant didn’t exactly impress Wall Street with its latest earnings performance.
It’s not that the numbers were disappointing. Instead, Disney may have been a victim of its own success. True, the pandemic imposed a massive disruption on the company. But the company turned lemons into lemonade, leveraging the power of its Disney Plus streaming platform.
Subsequently, its subscriber count skyrocketed, achieving upside projections ahead of schedule. But the Street wanted more, and unfortunately, Disney couldn’t deliver.
Looking at the bigger picture, though, the resultant selloff in DIS stock could be way overdone. With the reopening of our borders, more tourists are likely to make their way to Disney’s flagship theme parks and resorts. In fact, theme-park-saturated Orlando, Florida ranks as the top U.S. destination spot for travelers.
That’s a huge plus for DIS stock that many investors are overlooking, making it one of the more intriguing stocks to buy.
MGM Resorts (MGM)
As borders have reopened, some Canadian tourists are undoubtedly eager to visit the U.S. — especially at this time of the year. Chances are, our northern neighbors aren’t particularly interested in visiting places like Seattle, which would just be Canada Part Deux. Instead, they’re going to head south to places like California and Nevada.
If they’re smart, they’ll opt for the latter. Look, I love California, and it’s a great place to visit 365 days of the year. But Nevada? Trust me on this, it’s better to visit the desert oasis during the cooler times of the year.
And that segues into MGM Resorts as a possibly profitable stock to buy. When the pandemic first took hold, I publicly disclosed my apprehension toward MGM or any Las Vegas-related entertainment facility. However, the company has gone on to post a remarkable recovery. Combined with increased demand for travel and tourism, the Sin City icon could boost its momentum.
To be sure, MGM incurred volatility in recent sessions amid plans to sell The Mirage to another operator. Still, the company has several new ventures that will keep it busy, which means the red ink could be a discount.
Stocks to Buy: Hertz (HTZ)
When the Covid-19 pandemic shuttered non-essential businesses across the nation, one of the most conspicuous corporate victims was Hertz. One of the largest rental-car companies in the U.S., the overwhelming chaos of the virus forced the firm to file for bankruptcy protection.
As the Wall Street Journal noted, Hertz had challenges before the crisis hit. Thus, it’s not entirely clear the company won’t incur the same or similar problems after its recent uplisting from the over-the-counter market to the Nasdaq exchange.
I was torn about including HTZ stock in this list. Still, on the bullish end of the table, two of the biggest drags are now in the rearview mirror: the bankruptcy and the initial shock of the pandemic.
Moving forward, Hertz can potentially benefit from positive catalysts. For example, retail revenge, specifically stemming from one year’s worth of cabin fever, could give the stock a boost.
However, let me leave you with one not-so-pleasant warning. Per Hertz’s uplisting prospectus, the company issued 89 million public warrants. That could have a very dilutive effect on the equity unit, so watch out for that.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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.