Thanksgiving, man. Not a good day to be my pants. – Kevin James
It’s almost that time of the year. Depending on where you’re situated, the temperature has already dropped significantly. Leaves continue to change and fall. A dreaded COVID-19 winter is approaching, but before that, we get to enjoy Thanksgiving.
Unfortunately, Thanksgiving is going to look a little different this year. The Lead-Lag Report decided to highlight some stocks that are best to avoid this challenging holiday season.
Key Economic Indicators
As we approach Thanksgiving, it’s useful to consider the health of the overall economy. Business confidence dropped precipitously earlier this year and has yet to recover. The OECD’s Business Confidence Index (BCI) continues to remain below 100. Anything below 100 implies overall pessimism towards future economic performance.
Business Confidence Index (BCI). Source: OECD
U.S. corporate profits have also seen their values fall considerably this year. The second quarter of 2020 saw U.S. corporate profits drop to $1.59 trillion, representing a 10.7% decline.
The overall economy continues to operate on shaky ground. We have yet to achieve a recovery that surpasses pre-pandemic levels. The reemergence of lockdowns that we are now facing will only further exert downward pressure on a struggling economy.
Most of us aren’t going anywhere this Thanksgiving. For many, it will hardly be distinguishable from a typical weekend. Traditionally, however, it’s one of the busiest travel days of the year for the United States.
In 2018, AAA reported that nearly 54M Americans traveled during the Thanksgiving long weekend that year. The majority (around 90%) traveled by car, while the remaining 10% traveled by air, train, or bus.
54M people moving around the country creates a lot of economic activity; packed flights and hotels, busy restaurants, and highway gas stations filled with road-trippers. The impact of a holiday like this is difficult to quantify, but its significance is clearly massive.
Thanksgiving presents a continuation of the economic challenges we’ve faced for much of the year. Unsurprisingly, companies like American Airlines Group Inc. (AAL), United Airlines Holdings Inc. (UAL), and Delta Air Lines (DAL) will encounter less than ideal demand for their services this holiday season.
Despite airline stock prices having fallen so dramatically year to date, shares remain unattractive, given the challenges the industry faces in generating revenue. For example, Delta Air Lines saw an 88% decline in revenue in Q2 of this year, ending the quarter with a $5.7B loss. Q3 wasn’t much better, with revenue down 79% and a reported loss of $5.4B.
With a second wave on its way, or already here, these hurdles show no sign of abating. The risks facing the airline industry are still too great to justify exposure, despite the sharp drop in share prices they have experienced in 2020.
Football and Beer
The NFL is having a tough season. With COVID-19 disruptions and divided politics, football viewership has sunk heavily in 2020. One of the biggest days for football fans will likely look a lot less impressive this year.
With low viewership, companies advertising with the NFL are facing reduced exposure to their brand. Anheuser-Busch InBev (BUD), for example, not only depends on fans consuming their beverages in football stadiums, but depends on the millions of additional viewers watching from home who might be inclined to crack a Bud.
So, what can we expect in terms of viewership this Thanksgiving? If the preceding months offer any indication, we should expect a significant drop. For example, Sunday Night Football viewership has dropped precipitously in 2020, losing 37% this year. And Thursday Night Football? Well, that’s seen a frightening 70% drop!
This is further bad news for the world’s largest beer company. BUD has seen its shares fall over 33% year to date. With market share increasingly lost to alternative drinks – like spritzers – the once-dominant domestic brewer has seen better days. Despite entering the spritzer game themselves, revenue has continued to trend downwards since the end of 2017.
I have little conviction that BUD offers exceptional value at this stage. Anheuser-Busch faces increasing pressure from competing beverage companies that it has been unable to overcome. Even with alcohol consumption at record highs – and likely to ‘spike’ again during the second wave – BUD remains a risky name for your portfolio.
Macy’s Day Parade
Sadly, the larger-than-life Macy’s (NYSE:M) Thanksgiving Day Parade moves to the virtual arena this year. The event is a massive undertaking that typically requires thousands of volunteers and costs, on average, between $10.4M and $12.3M. Sponsors pay nearly a quarter-million dollars to cover parade fees. Just filling the balloons alone requires a minimum of $500K of helium!
These expenses, however, pale in comparison to the exposure sponsoring companies hope to obtain. A staggering 3.5M people typically head to New York City streets to watch the parade in person. That’s over and above the other 50M folks watching the parade on their television.
The flurry of economic activity that is required to prepare and run the parade can’t be overstated. Live acts must apply years ahead. Broadway shows compete for the chance to perform. In fact, inclusion in the parade can generate an additional $300K in advanced ticket sales for Broadway shows.
Even hotels will feel the loss of the physical parade this year. Travel site Oyster indicates hotels can charge up to triple the standard rates around the parade date.
And this speaks nothing of the bars, restaurants, and stores that will forgo increased foot traffic without the popular event.
Sadly, this is yet another adverse event for Macy’s. The iconic American brand has struggled with dropping revenue over the past few years and recently posted massive losses for the first two quarters of 2020 – the first negative quarters in over a decade.
The stock, which once traded above $70, is now a former shell of itself at a fraction of that price.
Macy’s may present a tempting buy for some investors at such a low price. However, like the previous names discussed, Macy’s faces serious hurdles ahead. COVID-19 has only accelerated the death of the shopping mall, which has been in motion for years. The requirements needed to bring this once-great name back to its former glory are too high. Any recovery will be lengthy and costly. I would caution against this name in your portfolio at this time.
No masks, and not a care in the world. Pre-COVID-19 Macy’s Thanksgiving Day Parade. Source: Peter Kramer/NBC/Getty Images
The longer COVID-19 restrictions continue, the more likely these impacts will persist long-term even after we’ve beaten the pandemic. 2020 is turning out to be entirely dominated by the virus, and longstanding institutions and holidays are changing in ways that may persist for some time.
Although the stocks mentioned above face an uphill battle this Thanksgiving, the tide could rapidly change depending on the second wave’s outcome. Even if a vaccine is still many months away, or even years away, there is reason to believe we can get back to normalcy under other conditions.
Advancements in rapid testing may offer hope for a more efficient and targeted quarantining. The results of a much faster testing system, alone, could be a gamechanger in the battle against COVID-19. Specifically, improvements in the speed of testing will help lessen the wide-reaching lockdowns that have characterized 2020.
If we start to get back to normal, a further upwards push in the equity markets is all but inevitable. BUD, M, and DAL would certainly see wildly different and far more optimistic forecasts for the Christmas season if this were to happen. For now, however, COVID-19 is a reality, and such, I recommended avoiding these names.
It’s not all doom and gloom, though. We still get to eat turkey this year.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: This writing is for informational purposes only and Lead-Lag Publishing, LLC undertakes no obligation to update this article even if the opinions expressed change. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. It also does not offer to provide advisory or other services in any jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Lead-Lag Publishing, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.