Posted in: Market NewsOp-ed
Published:
February 5, 2020 12:02 AM UTC

3 Stocks Worth Shorting as Coronavirus Fear Grips the World

There's no way to stop coronavirus from infecting the financial markets. American Airlines, Las Vegas Sands and Tesla present good shorting opportunities.
  • Coronavirus could soon be declared a pandemic, scientists have warned.
  • Share price of companies with substantial exposure to China could fall.
  • American Airlines, Las Vegas Sand, and Tesla are the three stocks that present an excellent shorting opportunity.

The Chinese government has been resorting to some authoritarian techniques to curb the panic around coronavirus.

After censoring reports from reputed outlets, the Communist Party of China (CPC) seems to have gotten more desperate. Now, they are checking cell phones to make sure no videos are being taken.

The official death toll has risen to 427 but several unofficial reports suggest that the death count is much higher than what the CPC is reporting. It’s no surprise that coronavirus is expected to be declared a pandemic.

Ripples of fear have turned into tsunamis as crematoriums are being built. And some crematoriums workers are saying that they are receiving as many as 20 bodies a day. Of course, even these numbers could be under-reported.

Coronavirus is still spreading at a rapid pace, and there’s no way the financial markets will stay immune. When the world’s second-largest economy comes to a standstill, there could be repercussions.

In my opinion, American Airlines (NASDAQ:AAL), Las Vegas Sands (NYSE:LVS) and Tesla (NASDAQ:TSLA) have the most to lose from the coronavirus panic and represent a potential shorting opportunity.

Coronavirus Could Hit all Airlines

A host of airline stocks have lost a lot of value lately because of the coronavirus epidemic. Over the last month, nearly all major carriers have lost over 10% in value.

American Airlines has been the worst performer. | Source: YCharts

Topping the list was American Airlines with a staggering 13.3% decline. When you consider other issues surrounding the company, it looks like the worse is yet to come. The company is vulnerable in the face of unexpected shocks, like coronavirus, because of the high debt it carries.

American Airlines’ debt makes it vulnerable to external shocks. | Source: Yahoo! Finance

The carrier has also been plagued with mass cancellations. Due to the grounding of Boeing 737 MAX, American Airlines has canceled roughly 115 flights a day.

It even had to shut down a flight route because of aircraft shortage. The 737 MAX is expected to remain grounded for the foreseeable future so the problems will persist.

American Airlines also holds a 2.76% stake in China Southern Airlines. Now that China Southern Airlines is dropping all major international flights, things could get worse.

Casinos will See Less Traffic due to Coronavirus

The airline sector isn’t the only one facing potential losses. The casinos of Macau have been suffering as well.

Macau casinos rely on visitors from the Chinese mainland. Local authorities have now banned them, which means they’ll lose almost 90% of the total visitor count.

Las Vegas Sands, one of the biggest casino names in Macau, had an unfavorable 2019. Thanks to coronavirus, 2020 could be a bigger disaster.

Source: YCHARTS

Despite the Macau government shutting down casinos for 15 days, Las Vegas Sands jumped almost 2% Tuesday and is up another 1% after-hours. But the future looks grim and stock price will soon catch up with the reality.

Tesla’s Chinese Business could take a Hit

Tesla stock has been on a gravity-defying run and is up over 100% in 2020 alone. But a parabolic rally can only last for so long. And when a parabolic run is breached, the downfall is often faster than the rise.

Tesla’s Chinese prospects have been the dominant force behind the rally. Its Chinese business is already taking a hit because of coronavirus. CFO Zach Kirkhorn recently said production at the Shanghai Gigafactory would be delayed by less than two weeks.

Since the CPC has been unable to contain the outbreak, it’s highly likely that the shutdown will get extended indefinitely. While Kirkhorn said the shutdown will only ‘slightly’ affect Tesla’s profitability, it’ll get much worse if it’s extended.

Tesla’s stock is priced for perfection. Any slight misstep can cause a colossal drop overnight. The market has seemed to brush aside factory-shutdown for now, but it won’t be able to ignore an underwhelming earnings report. Consequently, shorting Tesla via put options expiring in December 2020 looks like an appealing trade at this time.

Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com. The above should not be considered trading advice from CCN.com.

This article was edited by Sam Bourgi.

Last modified: February 5, 2020 12:03 AM UTC

Ayush Singh @TraderBased

Ayush is a financial blogger and a swing trader. He has roughly four years of experience covering the U.S. stock market and has consistently featured on Tip Ranks' list of top performing bloggers. He is based out of Indore, India and is also managing the portfolios of several local retail clients. You can email him on Ayush.Singh93@outlook.com

Show comments