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Analyst Read: Return-From-Home Stocks

How will return-from-home stocks fair on Pfizer's vaccine news?
(diy13)
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Big news today about Pfizer’s vaccine proving to be 90% effective, so be sure to check out No. 3 for that.

Because this is great news for a potential end to the pandemic soon, return-from-home stocks are popping today. Be careful chasing these types of stocks, though, as the pandemic isn’t over yet. In general, I believe leisure will come back much faster than business travel and that international travel will take longer to recover than domestic.

There is still too much uncertainty and not enough under-valuation for me to be interested in cruise stocks like $RCL, $CCL, and $NCLH. They’re still trading at 9-11x 2022 to 2023 EBITDA, which is in line with their historical valuations, meaning a 2-year recovery is already priced in. Yes, these stocks can do well if they recover quicker than in 2 years, but we do not know when cruise passengers will come back fully, let alone when international ports will allow them to dock again. 

I am positively inclined on U.S. airline stocks being a reasonable return-from-home sector. However, this morning, they are also trading at normalized valuations based on recovery by 2022. Business passengers have historically represented 75% of airline profits, despite only being 12% of the total passengers. Because that’s the case, I believe the recovery will still be gradual over 2021.

Southwest ($LUV) continues to be my favorite name in the space because they have the healthiest balance sheet and sizeable domestic skew. American Airlines ($AAL) remains my least favorite of the bunch because of its large amounts of debt and should be treated as a gamble, not an investment.

As of this morning, hotel stocks have shot past normalized valuations based on recovery by 2022, implying the market is now expecting a recovery by late 2021, which seems about reasonably priced, in my opinion.

All-in-all, the market continues to fairly price return-from-home stocks appropriately, which means the only outperformance we can truly gain is from being correct on how quickly travel, entertainment, and leisure volumes recover. If a significant recovery happens by 2022, you’ll most likely do well with these, but if the recovery drags on past 2021 and into 2022, then these stocks might flounder.

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  1. Is there a point at which you take a flyer on some of the more expensive growth tech if they fall more in a rotation? I moved into some Zillow on the drop today, but e.g. TDOC and such dropping.

  2. I’m very negative on Airlines due to business travel. My company spends big on business travel every year and while I can see it coming back, I’m guessing that it will take a while and that it will maybe be at 50% of what is was as we’ve invested a lot in working with our customers remotely.

    1. I would even guess business travel to be under 50% of what it was before. I agree the whole lot of return-from-home stocks don’t seem particularly cheap. Just have to be right on when people actually return

  3. Interestingly Pfizer expects to manufacture 100 million doses before the end of 2020 and up to 1.3 billion doses in 2021.

    But each individual requires two doses. So that’s only 50 million people in 2020 and 650 million people in 2021.

    Also, no tests done in children yet.

    Definitely encouraging “interim” results. But we’ve got some ways to go.

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