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Coronavirus - the living with the virus / recovery angle


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Coronavirus is a large topic. I thought it might make some sense to have a couple of threads on the topic so comments can be grouped a little better. The idea behind this thread is when will we see recovery, what will it look like, how fast, and what are some investment opportunities / suggestions to take advantage? There will likely be lots of mis-pricing by Mr Market given all the uncertainty.

 

Given we are on the cusp of multiple vaccines getting approved i am now starting to think about what the next phase of living with this pandemic will look like. The flip side of the equation is we are also going in to flu season and we are seeing another spike in cases / hospitalizations / more government restrictions. So we are going to be getting very divergent news flows in the coming months. My view is the current spike in cases will be a short term issue. The vaccine, however, will be the more important development over time.

 

My guess is the vaccine news flow will eventually win the day. But it might take some months to play out (or not?). My guess is the vaccine will also be a step in the right direction but not a ‘cure’. The key will be getting though the current flu season and into March / April with as little damage as possible.

 

Once we hit spring with favourable seasonality, likely vaccines, likely better treatments, better testing (hello 15 minute test at airports) we should be in a better place. By mid summer we should see even more improvement.

 

What are people thinking? Is this a realistic scenario? Too optimistic? Why? Too pessimistic? Why?

 

And, most importantly, what are some investment opportunities? Where is the most pent up demand?

- Travel? Airlines? Air Canada, north of the border, or Southwestern in the US? Ryanair in Europe?

- Hotels?

- Eating out? Restaurant stocks?

- Banking? RY or TD in Canada; JPM or BAC in US?

- Oil? CNQ or SU in Canada or CVX in US?

- Emerging markets?

 

Or is there a better way to think / invest?

 

To be clear, i am not expecting Covid to disappear. Rather, with multiple vaccines (therapeutics and better tests) i expect the world to begin the next chapter of living with covid. And i am trying to understand what will be written in that chapter and understand what behaviour change that will bring about. And what the likely best investments opportunities are :-)

 

I am thinking this might be a good time to get positioned/buy a couple best in class companies in industries that might recover the quickest should we get some good news on the medical front in the coming months that allows people (and economy) to get to the next phase of normalcy.

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I think there is going to be another leg down. I do not think another lockdown has been priced in and it is only November so warmer weather isn't going to save the day. The US election is distracting the markets but once it is over there might be an even greater focus on the rising cases and the scary possibility of another lockdown and I think it is inevitable because we've already seen lockdowns seem to work whereas partial measures do not really seem to (because of lack of compliance etc).

 

A vaccine was supposed to be ready in time for winter to avoid the need for Lockdown 2.0. But that doesn't seem to be happening. Of course positive news will buoy markets because it will allow them to see through the winter to a strong recovery in 2021. But further lockdowns will mean a more protracted recovery.

 

I see energy as a good opportunity. To some extent winter lockdowns are priced in and the difference this time round is that lockdowns won't be global and China demand is strong and there is no price war. Also the focus is on weaker demand when the other part of the equation is tighter supply.

 

I am less confident but banking also feels like a good opportunity. Difficult to handicap credit losses. But there has been a lot more income support than usual in recessions and banks have also been stress tested and are very well capitalized. And especially in Europe you are seeing GFC type valuation levels.

 

With the airlines I think Easyjet and Ryanair are safer bets. US airlines have a history of going bankrupt and Easyjet and Ryanair have a massive cost advantage and will benefit longer term as a lot of the other low cost airlines have or will go under. Also they are not as reliant on business travel. Not so keen on the aircraft manufacturers as will be a while before there is sufficient confidence to expand fleets.

 

Not keen on hotels. I think for present conditions there is overcapacity and that will put pressure on room rates. Also maybe there will be some secular changes such as preference for Airbnb, less business travel etc. And for companies that own their hotels leverage is very high and for franchisors like IHT and HLT where you don't have the same degree of balance sheet risk stock prices aren't really that much lower than pre-COVID levels. Booking.com if it got cheaper would be my preferred way to play an eventual recovery in the sector.

 

I think another interesting angle is to scoop up some nice dividend yields. With companies cutting dividends left right and centre every dividend has come under suspicion. But once that passes and a recovery is underway there is no way you are going to find blue chip companies sporting mid to high single digit dividend yields. So you get the dividend plus a re-rating kicker! Also some of these companies are fairly defensive so even if cases get out of control you won't see massive quotational losses. Kinda stuff I have in mind are the Big Tobacco stocks, AT&T, Verizon etc. But would welcome any other ideas.

 

What you could even do is have a mix of cyclical/recovery and defensive/income and rebalance.

 

 

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A COVID-19 vaccine is not a binary event. First of all, I expect traditional vaccines to win out eventually rather than RNA vaccines (Moderna etc) because they don’t need to be stored and transported at low temperatures (-4F) and possibly work more reliably. one of my holdings - MRK works on a vaccine that gets orally administered and should work well on older people too.

 

The first vaccine may work, but are likely not perfect in terms or efficacy, cost and ease of application etc. I think this COVID-19 epidemic is a huge boost for any company in the vaccine business as even flu vaccinations and possibly others will get a large boost.

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I think something in the entertainment area works. LiveNation is probably the closest pure play in an absolute sense. Probably a little too scary for many at this point, but Ive always done ok in my career/investments seeking out the best of breed in a space that is hated but carrying a flawed narrative. Many LiveNation events are also outdoor, so that should occur regardless next spring. If you write-off this fall/winter and assume its priced in, I would think you are good to go by next season. Young people arent scared of the virus the way old people and science nerds are. If you let them do concerts they'd be back tomorrow. So demand is definitely there. 

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I think something in the entertainment area works. LiveNation is probably the closest pure play in an absolute sense. Probably a little too scary for many at this point, but Ive always done ok in my career/investments seeking out the best of breed in a space that is hated but carrying a flawed narrative. Many LiveNation events are also outdoor, so that should occur regardless next spring. If you write-off this fall/winter and assume its priced in, I would think you are good to go by next season. Young people arent scared of the virus the way old people and science nerds are. If you let them do concerts they'd be back tomorrow. So demand is definitely there.

 

LVY bounced already a lot from the lows and they lost $600M last quarter. I haven’t dissected their financial statement but a lot of their cash are actually customer advances for concerts in the future. So far customer er have rolled those over, but what if they get the idea that this is going to take a little longer and want their money back?

 

I would bet against large scale concerts in Spring. I think summer 2021 is the earliest I can see a slow return.

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The "ending" of Coronavirus is still not clear to me, for that reason, I'm in no rush and buy Hotels / Retail/ Office Real Estate / Restaurants.

 

I think today's investing environment is much much more tougher than the GFC recovery (e.g. 2H2019/2010). 

 

If you go with Bruce Flatt's view, that things like office work go back to normal (https://www.bloomberg.com/news/articles/2020-10-29/brookfield-ceo-bets-work-from-home-won-t-last-when-cities-revive), then you long office real estate.

 

Something in me, tells me life will not go back to normal. This crisis is a biological event so it is not the same as investing in 1987 / 1998 / 2000 / 2008, especially as we don't have end game on coronavirus yet.

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And, most importantly, what are some investment opportunities? Where is the most pent up demand?

- Travel? Airlines? Air Canada, north of the border, or Southwestern in the US? Ryanair in Europe?

- Hotels?

- Eating out? Restaurant stocks?

- Banking? RY or TD in Canada; JPM or BAC in US?

- Oil? CNQ or SU in Canada or CVX in US?

- Emerging markets?

 

Or is there a better way to think / invest?

 

 

 

Great thread and question. I'm starting to look at companies which have low debt and can come out with a changed narrative in terms of their total addressable market on the other side. I think Disney is on its way to doing this but wish it had less debt. I think the most pent up demand is in being able to socialize again - how depends, can be individual interactions in nature, small gatherings, entertainment like movies and store shopping, community events, public events in order of increasing risk.

 

One thing that has changed in medicine in Telemedicine. Here to stay for sure. While I'm not that thrilled about standalone telemedicine companies, what may emerge is a "platform" company for healthcare to get your tele visits done, order your meds and have them delivered to your home - by your own doctor not someone you barely know. Still looking for how this shakes out but patients have tasted convenience and want more of it. Faster trials and FDA approvals are also noticeable and could impact Pharma lifecycle times and success rates.

 

One thing that has changed in education is asynchronous learning in mainstream institutions. We are now building a decent proportion of events online and asynchronously because it's insanity to expect people will keep sitting to learn for hours and hours (try Elucidat if you haven't, would have loved to invest in it). This, and the virtual learning platforms like Zoom rooms are here to stay. I think in the coming years people will invest in recreating and changing careers more going forward - perhaps a lot more of getting into a job or apprenticeship and patching together applicable credit courses to get a "degree" or "certification". Platforms that provide this will seriously challenge the bloated academic institutions. 

 

Lots more to think about!

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