Soon enough, a reopening will clearly boost hot stocks and the economy at large. It’s also safe to assume that the closer the nation comes to herd immunity, the closer the economy is to reopening. Herd immunity is anticipated to happen once at least 70% of the population has been vaccinated. According to NPR, currently 12% of the U.S. population has been fully vaccinated as of Mar. 18.
However, whether we reach herd immunity may be immaterial because the country could reopen with or without that 70% threshold. Projections on when the reopening will happen vary. Some suggest next month and some suggest late summer. In any case, though, the reopening is palpable.
That means certain sectors are about to get a serious bump. Travel, dining and entertainment stocks are all going to rise very quickly. In fact, these seven names are primed for the reopening:
- Planet Fitness (NYSE:PLNT)
- Dave & Buster’s (NASDAQ:PLAY)
- Southwest Airlines (NYSE:LUV)
- Dine Brands Global (NYSE:DIN)
- Darden Restaurants (NYSE:DRI)
- Walt Disney (NYSE:DIS)
- Alaska Air Group (NYSE:ALK)
Hot Stocks: Planet Fitness (PLNT)
One of the positives coming out of the pandemic is that people have been exercising at home much more. In fact, one study from back in September found that global downloads of fitness apps grew by 46%.
Companies like Peloton (NASDAQ:PTON) have been the beneficiary of this trend. In fact, PTON stock has risen 317% over the past one year. That increase is certainly a testament to the home-workout trend. However, an economic reopening means that people are going to be returning to the gym. The convenience of a home workout aside, people still enjoy weight training and the social atmosphere that only a gym can provide.
That’s why PLNT stock looks like one of the hot stocks in prime position as we near a reopening. Despite the fact that some of Planet Fitness’ rules irk more hardcore gym-goers, its base $10-per-month membership is sure to bring in lots of revenue.
That will certainly be welcome for the company, which saw revenues decrease by 41% in 2020. But the silver lining (if it can be called that) is that the revenue trend did show signs of a reversal at the end of the year. Fourth-quarter revenues decreased by a severe but less troublesome 30.1% year-over-year (YOY). Year-to-date (YTD), PLNT has gone up and down, but the stock is now up to about $83.
Dave & Buster’s (PLAY)
Another sector of the economy which has suffered heavily under pandemic lockdowns has been entertainment and dining. People have been prohibited from going out, eating food and being entertained. Therefore, Dave & Buster’s makes a lot of sense as a play on reopening. People certainly miss going to the arcade and enjoying pub food, so I’m guessing there are lots of cooped-up parents who can’t wait to get their children into a Dave & Buster’s soon.
In the most recent quarter, the company was operating between 60% and 75% of its total store base at limited capacity. The fluctuation during the quarter was a reflection of Covid-19 restrictions and different levels of reopening across the states.
Although 60% to 75% of PLAY’s stores were open, revenues were sharply down. Dave & Buster’s experienced a 66% decline in comparable store sales in the period. The company provided little detail as to why that happened. However, it’s safe to assume that patrons aren’t arriving in droves because of pandemic fears.
Once all of the company’s locations are open and vaccination numbers are higher, though, PLAY stock might prove to be a reasonable play out of the hot stocks on this list.
Southwest Airlines (LUV)
Early in the pandemic, airlines were a recurrent narrative. In fact, they have been one of the hardest hit industries this past year. The capital required to fly and maintain fleets of planes is understandably quite high. Therefore, it’s obvious that a grounded fleet of planes could quickly result in mounting losses.
When it comes to how to play an airline-travel rebound, the narrative has remained the same: pick the strongest operators because airlines across the board are going to be pummeled. Those which can pivot quickest and stanch the bleeding most will rebound strongest once all is said and done.
Southwest Airlines is regarded by most analysts as the operator with the strongest balance sheet in the industry. It’s also much more wieldy than larger operators like Delta (NYSE:DAL) or American Airlines (NASDAQ:AAL). That meant that early on in the pandemic, Southwest was much better at minimizing cash burn, which was extremely high. Larger airlines, however, have taken on significant debt to finance their bigger, stagnant fleets.
Of course, that’s not to say that Southwest hasn’t suffered during the pandemic. The company lost $3.1 billion during 2020. It also averaged $12 million in daily cash burn during Q4. However, American Airlines averaged $30 million in daily cash burn during the same period and recorded a loss of $8.9 billion for the year. That comparison is part of what makes LUV one of the hot stocks.
To top it off, Southwest was ranked number one in U.S. customer satisfaction for both short-haul and long-haul flights in 2020. So, there are lots of reasons LUV stock will be an early winner in a reopened economy.
Dine Brands Global (DIN)
Dine Brands Global is the company behind the casual dining favorites Applebee’s and IHOP — both of which have seen significant declines in 2020 due to the pandemic. Applebee’s fared better than IHOP did throughout 2020, with IHOP seeing same-store sales decrease by 32.8% while Applebee’s suffered a more modest 22.4% decline.
Throughout the year, though, Dine Brands has been countering the problems posed by dine-in restrictions with off-premise sales. At both Applebee’s and IHOP, off-premise sales rose by over 130% in Q4, accounting for about 33% of IHOP’s and 37% of Applebee’s sales mixes.
Moreover, the company managed to record an EBITDA of $158.7 million in 2020. However, this was down almost 42% from the previous year. DIN stock’s recorded 2019 diluted earnings per share (EPS) of $5.85 turned into a -$6.43 EPS loss in 2020.
But, despite the clear issues posed by the ongoing pandemic, DIN stock has not faltered. In fact, shares of this pick of the hot stocks are currently up 195% over the past one year. Now, Wall Street has shares rated as overweight on the strength that Dine Brands has shown and its potential given a full reopening.
Darden Restaurants (DRI)
Next up on this list of hot stocks for the economic reopening is DRI. The same general narrative that surrounds Dine Brands also holds true for Darden Restaurants. People want to go out and eat. Once they can, they will. For Darden Restaurants to benefit, people will have to go to the Olive Garden, Longhorn Steakhouse and its other fine-dining brands.
Darden won’t release earnings until Mar. 25, so investors have to wait a bit longer to see if its overweight status is warranted. Nevertheless, earnings released in December show that the company has struggled across its brand portfolio. Olive Garden’s sales were down 19% and Longhorn’s were down 8.9% (Page 13). Fine dining and its other brand sales declined over 30% and nearly 28%, respectively.
Now, investors will be looking to see how the company performed once earnings are released in a week. The company gave guidance anticipating 65% to 70% sales compared to last year (Page 16).
However, I wouldn’t expect markets to punish it much even if it’s slightly under that guidance. That’s because the narrative around reopening provides too strong of a catalyst for DRI stock moving forward.
Disney (DIS)
Disney stock had a year to be forgotten, yet also a year to be celebrated. That’s because part of its business took off while another part suffered massively due to shutdowns.
As you can probably guess, the narrative for DIS stock revolves around people returning to its parks when everything reopens. Disney’s parks were hard hit during 2020. In Q4, operating income decreased by 2.4 billion across its Parks, Experiences, and Products segment. The numbers for the full year amounted to a $6.9 billion decrease in operating income compared to 2019.
So, it might seem somewhat contradictory that DIS shares are up 107% for the past one year.
The reason? Disney was bolstered by its streaming services like Disney+, ESPN+ and Hulu. In fact, the company’s Direct-to-Consumer segment helped offset what could have been a much worse 2020. Disney+ grew to over 73 million paid subscribers by October in its first year. Hulu’s overall subscriber base also grew by 28% during the same period. Likewise, ESPN+ recorded over 10 million subscribers, up from 3.5 million the year before. Altogether, Disney received nearly $5 billion in revenues during the quarter from its Direct-to-Consumer assets (Page 3).
With Disney sustained by its streaming services for now, this pick of the hot stocks should be humming once its Parks & Experiences revenues come back online.
Alaska Air Group (ALK)
Last on this list of hot stocks, Alaska Air Group is another airline operator that investors should consider for an economic reopening. Like Southwest, this name is a smaller, well-respected player in the industry. For investors considering airline stocks, LUV stock and ALK stock make much more sense than larger operators.
That said, investors looking at this company’s raw numbers might be hesitant to jump on board with ALK. After all, it burned through $137 million in cash during January. However, it also provided improved expectations. For instance, passenger load factors were slightly upped to between 45% and 50% for Q1. Total revenues had also been previously anticipated to decrease between 60% and 65%, but that guidance was revised upward to between 55% and 60%.
Like LUV stock, Alaska Air is also highly regarded in terms of customer satisfaction. Given those stark numbers I just highlighted, it might be surprising that Wall Street considers ALK a buy. But that is indeed the case, proving again that nimble, well-run companies with happy customers make the best hot stocks to invest in when it comes to air travel.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.