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It’s Time to Start Digging for Stock Market Survivors

Last Updated October 4, 2020 4:20 PM
Laura Hoy
Last Updated October 4, 2020 4:20 PM
  • It could be time for investors to shift their portfolio from pandemic winners to pandemic survivors.
  • Airlines, retail stocks, and cruise ship stocks represent smart ways to play the recovery.
  • While there could be some near-term volatility, these sectors will likely deliver in the longer-term.

Investors have long been betting on companies that filled a void during the pandemic, but one fund manager says it’s time to start looking for the light at the end of the tunnel. Phil Orlando of Federated Hermes says investors who want to maximize their portfolios should be adding pandemic ‘survivors.’ 

We made a decision in the middle of August that we needed to take our domestic large cap overweight back down to neutral, locking in some tech-related profits and emphasize three areas of the market we felt had lagged dramatically, but were poised to begin to play catch-up over the course of the next 12 to 18 months.

So-called pandemic winners are stocks that have excelled during the past six months as people adjusted to living with coronavirus. Survivors, on the other hand, can be found within industries that got pummeled by the pandemic. These stocks, Orlando says, will deliver the greatest gains over the next year. 

Best Stock Market Survivors: Airlines

stock market, airline stocks, LUV stock
Airline stocks are one of the best ways to play pandemic survivors. | Source: Yahoo Finance 

The most obvious place to start looking for pandemic survivors is the airline sector. While travel is still severely depressed, it will rebound quickly once the coronavirus outbreaks have subsided. 

Southwest Airlines is the best way to play the airline sector , according to Bank of America Merrill Lynch’s Andrew Didora. His price target of $65 per share suggests an upside of more than 40% for LUV stock. Southwest’s focus on domestic travel means it will likely be one of the first airlines to recover from the pandemic in the U.S.

Across the pond, Ryanair offers a similar trajectory. The firm’s focus on low-cost travel within Europe makes it a strong player once the region beats coronavirus . The airline is well-capitalized compared to peers, so it will be in a solid position to grab market share and invest in growth coming out of the pandemic. 

Retail Stocks

stock market, LULU stock, KSS stock
LULU and KSS are good retail picks for investors searching for rebound plays. | Source: Yahoo Finance 

Another place investors can find bargain stocks is in the retail sector, where bankruptcies are at record levels. So far this year, the total number of chapter 11 filings has surpassed last year’s annual total. It’s something most were expecting eventually as the retail landscape shifted in favor of online shopping—but the pandemic has accelerated that trend substantially.

Sifting through the rubble in retail is a tricky business, but one potentially lucrative pick is Kohl’s. While KSS stock has been thrown into the rubbish bin with other failing department stores, the firm has managed to keep its head above water as its peers drop like flies. That leaves less competition for the company, whose stores have been working to create a one-of-a-kind experience with exclusive merchandise and an improving digital presence. 

A safer bet is Lululemon, an activewear company with a cult-like following. Not only has LULU stock remained strong amid a shifting retail landscape, but the firm’s athleisure clothing is likely to be popular  as the work-from-home trend continues post-pandemic. 

Cruise Ships

stock market, cruise stocks, RCL stock
Cruise ship stocks are by-far the riskiest stock market survivors. | Source: Yahoo Finance 

Buying cruise stocks is just about as risky as it gets when there’s a pandemic going on, but if you’re looking for stock-market survivors, it’s a great place to find them. Cruise ships are still barred from resuming service out of U.S. ports, but that order expires on October 31. 

According to Brandt Montour from JPMorgan Chase, cruise stocks have yet to price in that development . While he cautioned that the October 31 date isn’t necessarily a green light to resume sailing, it does offer some hope in the beleaguered industry.

Montour recommends Norwegian Cruise Line stock and Royal Caribbean stock as the two best picks the industry . 

Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com and should not be considered investment or trading advice from CCN.com. As of this writing, the author owned RYAAY.