Nearly half of Americans have received their first COVID vaccine shot. Most states are now open, with consumers venturing back to old activities at various levels of comfort. That means the market is getting its first taste of what market commentators have referred to as the “reopening trade”.
This reopening trade thesis encourages investors to pile into cruise operators, airlines, restaurants, and live event companies. But not all these activities are created equal. And not all are open within or beyond the US.
Yes, the US is opening back up and that is good, but it ignores something important about the vaccine situation. Not vaccine patents. The companies that own these patents are facing enough pressure to share them freely and I expect them to share the patents.
Now the real issue is vaccine manufacturing. The timeline to widespread access to coronavirus vaccines for poorer countries is 2023 at the earliest. Manufacturing facilities can only create so much vaccine per day. New manufacturing capacity takes at least six months to become productive.
That means that while the rich countries become vaccinated and return to some greater degree of normal life, poor countries may struggle for some years. We may see the occasional outbreak as a result. This could create some short-term volatility and an opportunity for smart investors.
Air Travel Returns Gradually
Consumers are also hungry for travel. Travel will not be the same for anyone who lived through this past year and a half. We will always be aware of the risks we ignored previously. Air travel may struggle to reach pre-pandemic levels for some years. Part of that is the risk of outbreaks of existing strains. Another part is the risk from new strains. We will return to safe global air travel. There is no doubt about that.
Airlines are unlikely to all go bankrupt, but they will likely experience volatility as the world takes steps to find the right way to reopen international travel. In the case of a bump in the road to recovery from COVID (which is inevitable), prices could plummet. Prepared investors who know their price point for that stock can get a bargain. People are not going to stop flying permanently.
If these companies have a bad week or even month, remember that even the initial market panic that resulted from global COVID restrictions lasted only a few months among the broad indexes.
Currently, more vaccinated countries with lower case counts are finding ways to allow vaccinated travelers to enter the country. The EU announced an ease to COVID travel restrictions on May 19th. So, things are generally looking up. But we saw with bitcoin this last week how much a market can overcorrect in just one day and it seems optimistic to think airlines will not have one bad day before 2023.
When others are mispricing (or ignoring) risk, it is a good time to decide what the right entry point is for you for a stock that holds unpriced risk.
Chain Restaurants Set to Boom
Buying chain restaurant stocks (especially those focused up market) is relatively safer than airline stocks. During the pandemic consumers saved much more of their income. In fact, the personal savings rate in the US went from 5% to 10% before COVID to the 10% to 20% range. The savings rate nearly reached 35% in one month.
That means Americans are more ready to spend generally. In particular I expect to see a higher propensity to spend on chain restaurants. But why chain restaurants and not fine dining?
There has been a mass exodus out of cities and towards suburban areas. Fine dining spots have never been very successful in the suburbs. So, chain restaurants will see an influx of new customers and existing customers will have more to spend. That means “sit down” chain restaurants will receive a healthy portion of this dining boom.
Data from OpenTable shows we are still not close to the global baseline from pre-COVID. I have a strong conviction that restaurants will see a massive boom fueled by people taking nearly any excuse they can to socialize and dine together in groups again.
Prepared Bargain Hunters Had a Good Year
2020 was a great year for prepared investors. With the volatility in the market, there were plenty of opportunities to benefits from others’ panic. Going forward in the reopening trades, prepared investors who know what price they’re ready to buy at can secure some deeply discounted shares of companies with very strong long-term prospects.