The Coronavirus is wreaking havoc on the stock market. However, I think most stocks will recover because many companies have no COVID-19 exposure.
Interestingly, I think COVID-19 is a greater danger to real estate than stocks. To explain, I think Mr. Market overprices real estate in many markets. In addition, many of America’s hottest real estate markets; such as New York and Denver, have a heavy exposure to travel and tourism.
On the other hand, I believe it will take several months or longer for Mr. Market to notice Coronavirus’s effects on real estate. I think the stock market will recover by then. Therefore, I think Coronavirus’s effects on the overall economy could be small.
Thus, now is a great time to buy stocks if you can identify those equities Coronavirus will devastate. Therefore, I have compiled a list of stocks COVID-19 could destroy. Please note that this list is strictly my opinion, so there is no guarantee these predictions will be helpful.
Stocks the Coronavirus could destroy include:
1. Royal Caribbean Cruises Limited (NYSE: RCL)
The Centers for Disease Control and Prevention (CDC) issued a No Sail Order for cruise ships on 14 March 2020. Moreover, the CDC “recommends all persons defer any travel on cruise ships, including river cruises, worldwide because of the increased risk of SARS-CoV-2 (Coronavirus) transmission onboard ships.”
The CDC wants you to avoid cruising of 686 Coronavirus cases and eight deaths associated with the Diamond Princess cruise ship in Japan in January. Consequently, I think the cruise ship business is dead for the foreseeable future because of COVID-19.
Notably, doctors think older people; the main market for cruises, are most vulnerable to the Coronavirus. In fact, California authorities recommend that all senior citizens stay home to avoid COVID-19 for the foreseeable future, The Los Angeles Times reports.
Thus you need to avoid Royal Caribbean (NYSE: RCL). Conversely, the cruise ship operator did well last quarter. In fact, Royal Caribbean reported a 7.94% revenue growth rate and a $1.036 billion gross profit for the quarter ending on 31 December 2019.
Despite that, I think Mr. Market overpriced Royal Caribbean at $22.41 on 19 March 2020. I expect Royal Caribbean to plunge into junk stock territory at some point because of coronavirus. Therefore, you need to stay away from Royal Caribbean and cruises unless you are looking for a stock to short.
2. JC Penney (NYSE: JCP)
Mr. Market was paying 50₵ for shares of this dying department store on 19 March 2020.
I think coronavirus could kill JC Penney by keeping its main pool of shoppers; seniors and older adults at home. In addition, Coronavirus self-isolation could force many of those people to buy from Amazon (NASDAQ: AMZN) forcing eroding what little customer base Penney’s has left.
I think Penney could lead a wave of retail bankruptcies in coming months. Penney’s is already in sorry shape, JC Penney reported $386 in cash and short-term investments and total debts of $4.896 billion on 31 January 2020. However, Penney’s reported quarterly revenues of $3.493 billion and a gross profit of $1.236 billion on the same day.
3. Seritage Growth Properties (NYSE: SRG)
This ailing real estate investment trust (REIT) much of the dying retail legends Sears and Kmart’s properties. Seritage is already in sorry shape. Stockrow estimates Seritage’s revenues shrank by -33.53% in the quarter ending on 31 December 2019.
Notably, Seritage reported quarterly revenues of $36.63 million on 31 December 2019. That number was down from $55.11 million a year earlier. Additionally, Seritage reported a quarterly gross profit of $16.43 million and a common quarterly net loss of -$25.87 million on the same day.
I think Seritage will die because the real estate it owns; old Sears and Kmart stores, is declining in value. I predict Seritage could lose all or most of its value if retail real estate collapses. Moreover, I expect a retail real estate collapse within the next 12 months.
Thus, I conclude Mr. Market overvalued Seritage at $8.51 a share on 19 March 2020. Therefore, I recommend that everybody but speculators seeking stocks to short stay away from Seritage Growth Properties. I expect Seritage to collapse if Sears dies.
4. Caesars Entertainment Corporation (NASDAQ: CZR)
After cruise ships, I think casinos have the biggest exposure to coronavirus. To explain, casinos rely on travel and older people who love to gamble.
However, Caesars reported a $1.09 billion gross profit on revenues of $2.169 billion the quarter ending on 31 December 2019. Conversely Caesars reported a -$1.198 billion quarterly net loss on 31 December 2019. Thus, I think Caesars could become one of the first Coronavirus bankruptcies.
5. World Wrestling Entertainment (NYSE: WWE)
Strangely, I think the WWE has had one of the best responses to the Coronavirus pandemic. To explain, WWE did not cancel its television shows Raw and Smackdown.
Instead, WWE is holding matches in empty arenas and broadcasting them. Oddly, the portion of Smackdown I caught on Friday 13 March 2020 was better than the usual WWE shtick. To clarify, the wrestlers’ monologues were funny and entertaining because they were improvisational.
However, WWE has a serious problem because it relies heavily on live events for merchandise and ticket sales. Many cities, including Denver, are cancelling all events at city-owned venues for the next 30 days. That hurts WWE because it holds most of its wrestling shows in city-owned arenas.
In addition, a lot of WWE’s talent is at risk for the Coronavirus. Vince McMahon; for example, is 74. Moreover, Edge, Stone Cold Steve Austin, the Undertaker, Daniel Bryan, and other stars have had serious injuries that put them at risk from COVID-19.
Plus, some WWE stars have serious diseases. In 2009, Brock Lesnar, for example, required surgery because of diverticulitis; a colon infection. Thus, Lesnar is at risk from Coronavirus and needs to stay away from crowds. Hence Lesnar, the current WWE Champion, cannot appear in crowded arenas.
Nor is it just Lesnar, Roman Reigns is a cancer survivor. They diagnosed Reigns with Leukemia 11 years ago, Bleacher Report reveals. Thus Reigns is at risk from COVID-19 and unable to appear before crowds.
Coronavirus threatens WWE (NYSE: WWE) because the company makes small amounts of money. For example, the WWE reported a net income of $69.25 million, an operating cash flow of $119.42 million, and an ending cash flow of $13.97 million for the quarter ending on 31 December 2019.
Consequently, a few months of event cancellations could send WWE into bankruptcy. Another possibility is that Coronavirus could force Vince to sell WWE to an entertainment conglomerate such as Disney (NYSE: DIS) or AT&T (NYSE: T). Disney, for instance, could WWE to get programming for its ESPN+ streaming service.
Under these circumstances, I think Mr. Market overpriced WWE at $36.03 on 19 March 2020. Investors need to stay away from WWE, but speculators could find World Wrestling Entertainment interesting.
6. Wynn Resorts (NASDAQ: WNN)
I think no company is at more risk from coronavirus than Wynn Resorts. To explain, Wynn derives much of its revenues from casinos in Macao in China. China is where the coronavirus originated.
Wynn has closed its Las Vegas properties but will keep paying employees, Fox 5 Las Vegas reports. Thus, Wynn is spending money but bringing in no revenue.
Wynn (NASDAQ: WNN), like Caesar’s Entertainment) had problems before coronavirus. For instance, Wynn reported a -$17.47 quarterly net loss on 31 December 2019.
However, Wynn reported a $676 million ending cash flow, a $730.58 million investing cash flow, and a $121.19 million operating cash flow for the last quarter. In addition, Wynn had $2.351 billion in cash and short-term investments on 31 December 2019.
Consequently, I think Wynn has enough cash to survive for a few months of coronavirus. However, I suspect over six months of coronavirus closures could force Wynn into bankruptcy.
To explain, they design the casino business model to cope with periods of low-income, and slow months. However, the traditional casino business model is ill equipped for extended closures.
High-end casinos, such as Wynn’s properties, are vulnerable to coronavirus because luxury hotels require a lot of maintenance. Therefore, Wynn needs to keep a lot of staff on payroll when it is making no money.
Given those circumstances, I think Mr. Market overvalued Wynn at $46.58 on 19 March 2020. I believe Wynn Resorts is a stock for investors to avoid for the next few months.
Fortunately, I think there are many stocks that will prosper during the coronavirus pandemic.
For instance, I believe S&P 500 indexes could keep their value through the crisis. Notably, Berkshire Hathaway (NYSE: BRK.B) invested $25 million in the Vanguard S&P 500 ETF (NYSEMKT: VOO) and the SPDR S&P 500 ETF (NYSEMKT: SPY) indexes in fourth quarter 2019, The Motley Fool reveals.
To clarify, I think the S&P 500 is safe from coronavirus because it contains many basic industry, energy, and technology companies. I cannot imagine how coronavirus could hurt manufacturers, energy producers, or tech companies.
Beyond the indexes, I think most individual stocks on the S&P 500 are safe from the coronavirus. Specifically, I believe you will be safe if stay away from stocks with exposure to tourism, brick and mortar retail, and live events.
Hence, the best advice I can think of for investors now is: do nothing and wait and see what happens. I predict coronavirus will destroy many companies, but Mr. Market will survive and thrive during the pandemic.