While the overall stock market keeps climbing to fresh records, reopening plays have stumbled due to the variant wave dampening enthusiasm for travel and concerts. Former Food and Drug Administration commissioner Dr. Scott Gotlieb told CNBC on Monday he believes the resurgence in infection numbers may be nearing its peak, citing early signs that infection rates are beginning to recede in the southern states that were most affected by spreading variants.
“You’re going to see the delta wave run its course probably between late September through October,” he said in an interview.
If Dr. Gotlieb is correct and the surging infection is near its top, then the reopening stocks could be due for a comeback. Investors who agree with Dr. Gotlieb’s logic are starting to pivot back to the reopening trade.
Our team has a few recommendations of stocks to add to your watchlist for when infection rates are significantly declining.
Factors such as value and quality are coming back into focus. “We think the value is going to return to favor,” said CFRA’s Todd Rosenbluth. “We think we’re going to see a rotation again back towards value-oriented ETFs.” Our first recommendation is a lower-risk ETF option for our readers who prefer the set-it-and-forget-it style of investing.
The iShares Russell 1000 Value ETF (IWD) offers exposure to large-cap companies that show strong signs of value. Investors with a longer-term horizon should consider the importance of large caps as they can add benefits to any well-balanced portfolio, including rock-solid stability and dividends. Companies within this segment are often considered some of the safest companies and tend to be in stable industries as well.
IWD is linked to the Russell 100 Value Index, which consists of roughly 650 holdings and is tilted heavily towards financials, energy, and health care. IWD is a staple in many portfolios, thanks to the fund’s level of diversification and cheap price. The fund has a relatively low expense ratio of 0.19% and a dividend yield of 1.57%.
Rising vaccination rates may be one-factor boosting air travel as of late. The TSA reported strong Labor Day travel numbers for the holiday weekend. On Friday, September 3, 2,129,999 people were screened, a whopping 96% of the number of travelers screened on the same date in 2019. This bodes well for airline stocks, but not all airlines are a smart investment right now. To choose the right airline stock, you’ve got to consider the fundamentals.
Delta Air Lines (DAL) was strong before the pandemic, and it seems likely that continued strength is in the wings for DAL. In 2017 Delta’s revenues grew by 14%, from $41 billion to $47 billion in 2019. Moreover, the company’s margins improved from lower operating costs and interest expenses. Thus, the EPS surged by 64%, from $4.45 in 2017 to $7.32 in 2019. In 2020 when capacity dropped by 51% and the passenger load factor plummeted to 55% the Delta’s revenue from by 60% year-over-year.
Strong second-quarter performance indicates a likelihood of quick demand rebound after the fourth wave and an upside in Delta Air Lines stock. In the second quarter, ended June 30, DAL’s total operating revenue increased 385.4% year-over-year to $7.13 billion. Furthermore, its net income came in at $652 million compared to a $5.72 billion net loss in 2020.
DAL stock has not been immune to the effects of resurgence fears; share price is down more than 17% over the past 3 months. Even though the resurgence of Covid cases is detrimental to airlines in the near term, progress on the vaccination front should help the industry recover with time. Analysts expect DAL’s revenue and EPS to increase 43.5% and 224.6%, respectively, year-over-year to $41.27 billion and $4.31 in 2022.
The consensus among 23 polled analysts is to buy Delta stock, 15 say to Buy DAL stock, and 8 say to Hold. There are no Sell ratings for the stock. A median price target of $55 represents a 38.38% increase from its current price.
Cintas (CTAS) provides corporate uniforms and apparel and first aid, safety, cleaning, and restroom products and services. The company leads the market in the $25 billion uniform rental space and is poised to benefit as offices welcome back employees with a heightened focus on safety and cleanliness. Increased emphasis on hygiene due to Covid should increase the adoption of facility services and the propensity to outsource uniforms.
“Reopening and focus on Health, Hygiene, and Safety due to COVID and ESG has driven increased demand for Commercial Services. In particular, solid demand for cleaning/disinfecting solutions and a greater propensity to outsource facility, uniform rentals, and food services should drive solid growth for Commercial Service providers,” RBC’s Ashish Sabadra and John Mazzoni said in a report last week.
The company’s scale provides advantages in operating leverage, which should help combat inflationary pressures. Meanwhile, potential growth opportunities in healthcare, education, and government organizations should help CTAS to expand its customer base.
Of 16 polled analysts, 8 rate the stock a Buy, 6 rate it a Hold and 2 rate it a Sell. A median 12-month price target of $450 represents a 5.5% increase from its current price.
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