As a growing number of U.S. states begin to re-open their economies after the coronavirus shutdowns, it’s becoming clear that not all businesses will prosper in the post-lockdown paradigm. While some sectors and industries will outperform—and even benefit from—the new economic reality, others will suffer greatly. With that in mind, it’s imperative that investors know which industries are likely to suffer the most damage in the coming months. What follows is our list of the companies and industries that should be avoided.
Among the companies that were hit the hardest by the coronavirus pandemic were those in the hospitality industry. Hotel chains suffered enormous losses during the nationwide lockdowns as Americans were heavily discouraged from leaving their homes, let alone traveling. Consequently, hotel operators suffered huge increases in room vacancies as customers stayed away in droves.
One of the worst-performing stocks in this category is MGM Resorts International (MGM), a Nevada-based hospitality and entertainment company which operates resorts around the country. With tourism expected to take a dive this summer and possibly into early 2021, its subsidiary MGM Grand Detroit has laid off 2,600 employees, and the parent company has indicated it may have to make additional layoffs. There’s nothing pretty about MGM’s chart; investors would therefore do well to avoid the stock.
Speaking of traveling, the skies are no longer friendly for many of America’s leading airline companies. Among them is Southwest Airlines (LUV), whose stock has shed almost 60% in the first four months of 2020. A COVID-related drop in business flying has hit the company particularly hard, with net bookings of paying passengers having declined by nearly 100% year over year. Analysts, meanwhile, anticipate additional weakness for the industry in the remainder of this year and possibly into 2021. Stay away from LUV if you want to avoid a crash landing.
Not only is travel expected to be down in the post-lockdown world, but dining out is also likely to be out of style for quite some time. Strict new state and federal guidelines will make eating in a sit-down restaurant a less-than-delightful experience for many patrons, and the numbers are expected to be down substantially for the industry. While restaurants with an efficient takeout business are more likely to survive (and even prosper) in the months ahead, some dining establishments won’t be able to adapt as quickly. Among them is Dave & Buster’s Entertainment (PLAY), an eat-and-play themed restaurant which doesn’t have a thriving takeout or delivery service. The company closed all its locations in March and hasn’t yet re-opened them as of early May. PLAY’s chart tells a story and its message screams, “Stay away!”
While restaurants are in the doldrums, many retail chains aren’t faring any better. Whenever a formerly big-name company falls victim to a bearish secular trend, forcing its stock into the speculative “penny” category, it can be very enticing for investors who see a bargain in the ultra-low price. That’s precisely what has happened to the once-great department store J.C. Penney (JCP). The company has fallen on hard times as a combination of declining in-store sales and a virus-led sales collapse have put its stock on the skids, most recently hitting an all-time low of 0.18 per share. Investors would be wise to avoid the temptation to plunge in on JCP, however, as the firm is reportedly considering declaring for bankruptcy.
Americans likely won’t be going on cruises anytime soon thanks to the coronavirus. One of the most infamous stories related to the pandemic was when leaked emails earlier this year revealed that Norwegian Cruise Line (NCLH) staff were instructed to downplay risks related to the virus in order to encourage customers to book cruises with the company. However, in a Securities and Exchange Commission filing in May, Norwegian indicated that it faced a potential liquidity crisis over the next 12 months and expressed “substantial doubt” about its ability to sustained profitability. This is definitely one stock to avoid for now.