Capitalizing off a Second Round of Shutdowns



Round Two, Fight!

Dear Investors,

Earlier this year, the threat of a pandemic impacted the economy in unprecedented ways. As we all braced for lockdown, we watched as the Dow Jones Industrial Average tanked over 35% from all-time highs and the S&P 500 take a sharp 30% decline. There is no doubt this year has been full of volatility and uncertainty for investors as the market has relatively healed since then, with the DJIA and S&P 500 up 3 and 4 percent respectively.

Similar to how we’ve seen the markets swing this year, so have the number of reported COVID-19 cases in recent time. With the number of confirmed cases increasing in all 50 states across the country, states are slowly beginning to re-tighten restrictions. Earlier this week, California discouraged all forms of travel and recommended a two week quarantine for all visitors, with several states following in their footsteps.

Despite this, all is not grim. If one thing should be taken away from this year, it’s that all things are cyclical. Although there seems to be a lack of certainty in it all, for investors, a chance to turn profit is certain.

If we take a look back to the start of this pandemic, perhaps we can understand history to better understand how a future lockdown might impact our portfolios. There are several key dates we will consider, starting with February 2nd when air travel was restricted, followed by Mid march when Say-at-Home-Order were implemented, and concluding wih how our selected industries have responded.

Key Industry #1: Airline

Perhaps the industry experiencing the impact of COVID-19 the most, airline stocks have been insanely volatile throughout this year. Following the mandatory restriction on air travel, we saw stocks like United Airlines (UAL) drop 30% in one day, Boeing Co (BA) lose 60% of its value in one week, and competition such as Southwest Airlines Co (LUV) similarly fall 30% in a week. Although this might scare some investors into selling their holdings, other will be looking to win big on corrections.

Following these initial reactions, we’ve seen incredible bullish activity among all airline stocks, despite their sharp decline earlier this year. Since their initial downturn, we’ve seen all three stocks rally an incredible 80% with several low points for buy ins.

Following a 80% decline in price in one week, Boeing rallied 80%

Although uncertainty can cause unpredictable movement among stocks, it can be expected that a second lockdown should fare similar results. Investors should take note of these incredible rallys and set buy points at yearly lows in order to score big on these opportunistic market swings.

Key Industry #2: Fast Food

Similar to our top pick airline stocks, the food industry was hit heavily at the start of covid as shoppers opted to stay indoors rather than risk outside contact. Here, even american favorites such as Coca-Cola ca(KO), YUM! Brands, Inc,(YUM) (which owns fast food companies such as Taco Bell) and Chipotle (CMG) shares fall around 50% the same week shutdowns were announced. However, as previously stated, reaction can lead to huge corrections. In the case of Coca-Cola ca(KO) and YUM! Brands, Inc,(YUM), gains of 50 and 80% respectively were seen, with both share prices increasing year over year. However, unlike their counterparts, Chipotle (CMG) was seen rallying over 160% following initial shutdowns with the implementation of new sanitation guidelines, increasing over 60% to date and fairing well despite shutdowns.

Chipotle stock seen soaring 130% following mid-march shutdowns

There is no doubt a second round of shutdown will cause many to harbor at home, resulting in a similar reaction within the food industry. For this reason, investors should

take note and find comfort knowing there’s a chance to score big following the market’s reaction.

Key Industry #3: Department Stores

Similar to our pick industry of fast food, department stores will suffer huge loss from initial shutdowns due to lack of foot traffic. Although in-person shopping may be convenient and profitable under normal conditions, the threat of lockdown means these businesses can expect sharp declines in revenues, and ultimately decreased share price in the short run. Following the initial shutdown, large retailers such as Walmart (WMT), Target (TGT) , and Best buy (BBY) all suffered 20-30% declines in share prices. However, following relaxed restrictions, retailers were able to capitalize on panic-buyers purchasing commodities such as toiletries in droves. Following this, Walmart (WMT) and Target (TGT) both rallied 30 and 80 percent to date, with Best buy (BBY) surging an incredible 130%. With the holiday season just around the corner, seasonal shopping and an increase in panic-buying should prove to be profitable for these same companies.

Bottom line:
Although the threat of shutdown may be daunting to some consumers, it could prove to be a blessing in disguise for those paying close attention to the markets. Strong correlation between Covid-related policy and consumer behavior means traders have the ability to capitalize on fluctuating stock prices in unprecedented times.

Stay safe and healthy out there,
The BLI Team

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