Jeff Reeves's Strength in Numbers: Buy Zoom and Clorox, sell Darden Restaurants and American Airlines as coronavirus fear grips the U.S.
The ever-evolving status of the novel coronavirus epidemic makes it impossible for investors to fully understand the true scope of this public health crisis. But one thing is clear: The uncertainty by itself has been enough to send some stocks reeling.
But some stocks are decidedly harder hit than others. And a few stocks could actually be potential opportunities if public health concerns continue to mount and result in changes in consumer and business behavior. Even in the absence of something as serious as quarantines or widespread closures of schools and stores, the uncertainty alone could be enough to reshape market dynamics.
So which companies are the potential winners and losers on Wall Street? Here are some industries to watch:
Losers — sit-down restaurants
In China, where the outbreak originated, we saw chains such as Yum Brands
suffer as residents avoided restaurants, and multinationals like Starbucks
close their doors at a host of locations in the region. While some of this fallout was because China’s government took the unprecedented step of demanding restaurants shut down in high-risk areas, Western restaurant operators are sure to see a reduction in traffic through simple consumer caution alone. Dine-in restaurants including Olive Garden operator Darden Restaurants
and Texas Roadhouse
are a few bigger names that face this threat.
Winners — delivery and takeout stocks
Of course, the flip side of consumers eating out less is that food-delivery companies may have opportunity for upside. From pizza giant Domino’s Pizza
to third-party providers like GrubHub
and Uber Eats from Uber Technologies
there are a ton of options for those who want prepared foods but don’t want to sit down in a crowded café or restaurant. Even take-out operators like McDonald’s
may be able to sidestep some of the impact, simply by doing business through a drive-through window instead of at a crowded counter.
Winners — packaged-food stocks
As the coronavirus threat grows, it’s also natural to think that these wary diners opt to stay home instead of eating out. That is sure to be a boon for foods giant Conagra Brands
which offers frozen dinners under the Healthy Choice and Marie Callender’s nameplates, as well as Lean Cuisine and Stouffer’s parent Nestle
The more culinary-minded among us may prefer to slave over a stove, but these options will surely become more attractive.
Losers — travel stocks
Many airlines are waiving rebooking fees for travelers affected by the outbreak, but there’s no guarantee that customers can simply move their dates Not only is travel increasingly restricted to and from certain regions, but the assertion from public-health experts that the COVID-19 virus can spread to anyone less than six feet away fundamentally challenges the very idea of taking a plane, cruise liner or train anywhere. American Airlines
has crashed 40% in the past 30 days as a result, and cruise operator Carnival Corp.
isn’t that far behind with a loss of more than 30% in the past month.
Winners — in-home entertainment stocks
If taking a cruise comes with the risk being quarantined, then naturally we should see in-home entertainment options become more popular. This includes subscription-based Netflix
or Alphabet’s ad-supported YouTube. Video-game providers with heavy digital sales like Activision Blizzard
could also do well, as well as fitness name Peloton Interactive
which enables people to experience gym-like workouts in the privacy of their own home.
Losers — insurance providers
Of course everyone’s desire to stay home to watch Netflix instead of going to a movie is bad for organizers of events that have increasingly been canceled. This includes the Geneva International Motor Show to the annual Facebook developers conference. We’ve also seen the impact on a handful of NCAA basketball games, raising fears that the annual March Madness tournament may be in jeopardy. That’s bad for eventgoers and local economies, but even worse for the firms that insure events and are forced to take multiple hits at once. As hedge fund guru Ray Dalio recently said: “This is one of those once-in-a-100-years catastrophic events that annihilates those who provide insurance against it.” Though not a huge part of their typical operations firms like The Progressive Corp.
offer special-event insurance that cover everything from conferences to small weddings. There’s a chance that this business line becomes troublesome as the coronavirus shuts down gatherings of all stripes.
Winners — remote-productivity stocks
As more companies are encouraging staffers to work from home amid the virus threat, it stands to reason that telework service providers will be increasingly vital to normal business operations. A short list of related firms includes file-sharing platforms like Dropbox
teleconferencing companies like Zoom Video Communications
and chat platform Slack Technologies
to name a few. And of course, let’s not forget Teladoc Health (
which allows patients to get a check-up without going to a crowded doctor’s office.
Winners — cleaning-supply manufacturers
Beyond $21 billion Clorox
which makes disinfectant wipes and sprays, there’s also Reckitt Benckiser
which owns Lysol-branded products, and Procter & Gamble
with its lineup of Comet, Dawn and Mr. Clean cleansers. Admittedly, the efficacy of those products against this specific strain of COVID-19 remains unclear but plenty of consumers who feel it’s better safe than sorry will be quick to snap up those products regardless.
Winners — social media
are perfectly positioned to capitalize on a hard-fought political season, a media frenzy around coronavirus and the general boredom of people stuck inside with only a phone to keep them company. Engagement is sure to rise in the current quarter on these platforms, and stay sticky as long as people keep avoiding crowds.
Jeff Reeves is a MarketWatch columnist.