Is Now The Right Time To Invest In These Epicenter Stocks?
Epicenter stocks, or more commonly known as the ‘reopening stocks’ have been showing some signs of momentum in recent weeks. Perhaps some of you haven’t heard of this term yet. These so-called epicenter stocks are primarily those in the consumers, financials, energy and industrials sectors. Interestingly, these top epicenter stocks have outperformed most tech stocks and biotech stocks recently. So, what is this telling us? Does that mean these epicenter stocks are really taking off?
Fundstrat founder Thomas Lee sees “epicenter stocks” — those that sank the most due to restrictions implemented to slow the spread of COVID-19 — as those likely to see the best gains.
The definition came from Fundstrat’s Thomas Lee, which he believes that we are expecting to see a ‘monstrous’ rally sometime this week or next. He concluded with the research carried out by his team. “When cases peaked in late April, it took 20 days before the epicenter stocks started their massive 3,000bp [or 30%] outperformance rally (over 10 days). If cases peaked July 24th (which looks definitive), the 20th day is August 14th,” Fundstrat reasons.
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Epicenter Stocks Set To Rally, Really?
Of course, these epicenter stocks may be cheap to buy. But being cheap shouldn’t be the reason why we buy a particular stock, right? What happened to “price is what you pay, value is what you get?” The last thing any investors would want to do is to pounce on these epicenter stocks and to find out is another false reopening rally like what we saw in May.
The big question here is, can we expect the rally we see recently to be sustainable? Yes, I get that many people still carry out their normal activities, that should lead to more economic activities. But isn’t this a bit early? Well, the thing is, the market doesn’t care if you’re right or wrong, or why the stock market is heading to a particular direction. Most importantly, the outlook of the economy is the best indicator of whether these epicenter stocks could sustain their rally in the medium term. With all that in mind, let’s take a closer look at the most talked epicenter stocks in the market right now.
Airline Stocks Surges
Shares of major U.S. airlines such as American Airlines Group (AAL Stock Report), Delta Air Lines (DAL Stock Report) and United Airline Holdings (UAL Stock Report) are all treading higher as we start the week. These airline stocks are also up during the pre-market trading as of 6.16am EDT. There are a few reasons for the surge, such as increased traveler throughput as a vote for gradual reopening. In fact, according to the TSA checkpoint, the travel demand reaches 5 month high. In addition to the improved fundamentals, the U.S. senators also indicated support for additional aid for the battered industry. The U.S. Global Jets ETF rallied 4.8% to start the week, with most, if not all its components gaining ground.
Is It Too Early To Sail With These Cruise-Line Stocks?
Now that the major cruise-line stocks are showing bullish sentiments, should investors be optimistic? Despite reporting losses bigger than expected, shares of Royal Caribbean (RCL Stock Report) continued to soar, that could be because their revenue was better than many had anticipated. Right after the announcement, competitors like Carnival (CCL Stock Report) and Norwegian Cruise Line Holdings (NCLH Stock Report) are also following suit. Apart from the ‘monstrous rally’ that was expected by Tom Lee, I personally do not see any reason to be optimistic, at least at this stage.
The current predicament of the travel industry is pretty well anchored. Major cruise lines have cancelled their U.S. and most of their international sailings until at least early November. And as you would expect, many of the passengers on suspended trips have asked for refunds. About half have agreed to accept credit on future sailings. Just last week, dozens of passengers on a Norwegian cruise ship tested positive for COVID-19. That said, even if vaccines are found to be safe and effective today, there’s no way we can get everyone vaccinated in the medium term. On that note, would you still be bullish on these cruise-line stocks?