The last few weeks have been great for stock market short sellers, experts say. In fact, it has been the best period for short sellers in more than a decade.
Short sellers are traders who make money selling borrowed shares of stock to make bets that the share price will drop rather than rise. Usually, investors search for the highest-quality undervalued stocks to purchase. But short sellers seek out stocks that are overvalued and companies that are in financial trouble.
Covid-19 has set off a broad stock market sell-off. “Short sellers have made a killing in recent weeks as share prices have dropped,” Yahoo Finance reported.
Here are 10 stocks short sellers are betting against with a covid-19 theme.
With the events business on major pause due to the covid-19 pandemic, Live Nation is running on empty. On top of this, the Beverly Hills, California-based events promoter and venue operator is dealing with lawsuits over canceled concerts and festivals such as Coachella. The company’s stock has been tumbling.
Live Nation CEO and co-president Michael Rapino has been trying to downplay the impact of the coronavirus on the company.
Although Live Nation reported solid growth in its 2019 earnings with the stock staying strong through most of February, the pandemic has been a major setback.
Live Nation’s stock-price descent began on Feb. 20 and picked up steam into March. February’s high of approximately $76 per share is over 33 percent greater than the current per-price value, Digital Music News reported.
Still, Live Nation has the market share when it comes to live events.
“Of the nearly $22 billion in ticket revenue sold globally for live music events in 2019, Live Nation promoted about 60 percent of those shows, AEG handled roughly 30 percent, and the other 10 percent were organized by indie promotion firms,” The Los Angeles Times reported.
The pandemic, however, has severely impacted the company’s bottom line. “This throws a huge wrench in the business at a bad time,” said Ray Waddell in an LA Times report. “The ripples are massive. There’s a whole economy built around this, a massive machine for every tour that gets rolling. You hate to see it ground to a halt. It hasn’t ground to a halt yet, but there is a huge cloud hovering over it.”
Live Nation Entertainment Co-President Joe Berchtold, however, is telling investors not to worry about its stocks. During an investors’ conference recently, he reminded them that about 70 percent of the company’s business is generated from June and beyond.
“Companies like Live Nation and AEG have plenty of cash liquidity, so they are going to be able to weather the storm,” said Brandon Ross, a partner and media and technology analyst at LightShed Partners.
“The longer this goes on, the more difficult it’s going to be,” Ross added, “which is probably going to breed a larger opportunity for the likes of Live Nation to grab even more market share on the other side.”Still, Live Nation has taken to slashing costs. Major cuts that will amount to about $500 million this year. CEO Rapino has even sacrificed his $3 million annual salary, Music Business Worldwide reported.
The coronavirus pandemic has created a crisis for the gaming industry. Many people don’t want to spend their money on gambling when they might not be working. Gaming is especially down in Asia, where gambling is a major industry.
This has affected a number of casinos, especially the Las Vegas Sands (LVS). The Nevada-based firm has locations in Macau and Singapore and operates The Venetian Macao; Sands Cotai Central; Four Seasons Macao; Sands Macao; Other Asia; Marina Bay Sands; The Venetian Las Vegas which includes the Sands Expo Center; The Palazzo; and Sands Bethlehem.
LVS generates the majority of its revenue from Macau — 63 percent — and one of the most heavily exposed among the U.S. casino names, CNBC reported.
But despite the devastation to the firm’s stocks over the last few months, experts say LVS “stands the best chance to rise from the rubble at this point,” CNBC reported.
“LVS, which has a very strong balance sheet, is going to really be able to capitalize on the position,” according to Boris Schlossberg, managing director of FX strategy at BK Asset Management. “Despite the gloom and doom, I think Asia should rebound first and LVS will be the beneficiary. In the meantime, I think the fact that they have a very strong balance sheet allows them to opportunistically look for other acquisitions. So, overall long term I think they’re going to come out of this a winner.”
People aren’t traveling and they definitely aren’t taking cruises. Cruises got a bad name when several cruise ships were found to have hundreds of passengers infected with the coronavirus. When the pandemic first started, more than 1,500 people on Carnival cruise ships were diagnosed with covid-19, and dozens died, Bloomberg reported.
But Carnival Cruise Line is looking for smoother sailing ahead. It says it expects to resume sailing Aug. 1. Carnival and all cruise lines were banned from sailing from U.S. ports since March when the Centers for Disease Control and Prevention issued a no-sail order. The order has been extended until “the Secretary of Health and Human Services” says that COVID-19 no longer constitutes a public health emergency, NPR reported.
Right now, Carnival is trying to avoid bankruptcy. Its stocks are down 80 percent from its 52-week highs. “That has brought out the bargain hunters. Traders have bid up CCL stock on several occasions in recent weeks,” Investor Place reported.
According to its last quarterly report, Carnival had half-a-billion dollars of cash on hand with near-term obligations of more than $4 billion.
The company was able to raise funds from private investors — but it came at a price.
“The company raised $4 billion in senior loans at a punishing 11.5 percent interest rate,” Investor Place reported. “That alone will add nearly half a billion dollars a year of interest expenses to Carnival’s operations. Even worse, the bonds are due in 2023, meaning that Carnival only has a couple of years to get its operations back on track before it owes the principal on that $4 billion.”
Still, in the short-term, Carnival stocks should offer up plenty more trading opportunities, especially since it was reported that the Kingdom of Saudi Arabia has taken a meaningful stake in the company.
The oil industry is dealing with more than a few downers. Crude oli collapsed over lower demand and people traveling a lot less during the covid-19 pandemic.
In fact, oil dropped to its lowest price in 20 years amid a record collapse in U.S. fuel demand and the biggest ever weekly build-up in domestic crude supplies, Bloomberg reported.
“At some point, the market will have to start looking forward,” said Daniel Ghali, a TD Securities commodity strategist. “The OPEC (Organization of the Petroleum Exporting Countries) cuts are going to be implemented and also U.S producers will have to reduce their output. Our expectation is we will start to see the market tightening as early as June.”
Oil majors actually had a good month in April. Chevron Corp. stocks advanced 27 percent, “but the pain for oil companies isn’t anywhere near over yet,” Motley Fool reported.
In early March, OPEC and Russia disagreed on further cuts. This resulted in a price war that pushed supply even higher. Oil prices plummeted and investors reacted by selling off the stocks of oil companies like Exxon, Chevron, and Occidental.
Still, the future could be positive. If the pandemic has eased by summer, travel by car will be up as people head out for the vacation road trips. This means more gas will be purchased.
“There are ‘positive’ things happening in the oil space, with companies pulling back on capital spending, wells getting shut down, and weaker players going bankrupt,” The Motley Fool reported. “All of this will help clear the oversupply, even if they don’t sound like good news. However, it will still take time, and perhaps a lot of it, to get through this rough patch. The broad gains in the energy space in April were nice to see, but the industry is still dealing with material headwinds.”
The company that experts predict will come out on top is Chevron. “Chevron appears to be one of the best-positioned oil majors to weather the storm, with modest debt and exploration plans,” The Motley Fool reported.
Walt Disney stocks dropped 17 percent in March and this, of course, had investors worried about the company’s loss of revenue while Disney’s parks are closed due to the coronavirus.
Disney’s worldwide theme parks accounted for about 30 percent of revenues and nearly 50 percent operating income, according to Deadline.
But there’s more to Disney than just parks. The company includes cruise lines as well as film and TV studios — all industries that have been hit hard by the pandemic.
The entertainment giant had to postpone the release of several films on its schedule as movie theaters across the country closed over the covid-19 pandemic.
Covid-19 has affected most Disney divisions.
“Disney held $6.8 billion in cash on its balance sheet at the end of December, with total short- and long-term debt totaling $48 billion,” The Motley Fool reported. “The company issued another $6 billion in debt during March to fund its near-term operations. That will bring its cash up to more than $12 billion, which should buy Disney some time until its parks reopen.”
One bright segment for Disney? Its new streaming service, Disney+, is seeing a spike in demand as people self-quarantined at home seek out entertainment. And while it can’t fully compete with Netflix yet, Disney+ is expanding, recently launching in Western Europe and India.
Still, the growth spurt by Disney+ won’t offset the loss of revenue at the theme parks.
“Analysts expect Disney to lose about $3 billion in revenue from the parks and hotel closures. Disney’s parks, experiences, and products segment generated over $26 billion in revenue in fiscal 2019, which ended in September,” The Motley Fool reported.
S&P Global lowered Walt Disney’s credit rating to A- amid doubts that Disney theme parks will return to normal capacity at the same rate as the overall economy. Even after stay-at-home restrictions are lifted, continued social distancing and consumer concerns about public events will affect Disney, Deadline reported.
With this in mind, Disney’s debt is expected to climb for the next two years. To help deal with debt, the company decided to stop paying 100,000 workers. This will save it a reported $500 million a month. This didn’t sit well with employees as Disney is “still on track to give shareholders $1.5 billion,” the New York Daily News reported.
The question remains, will Disney become the happiest place on Earth again? Ever?
People just aren’t flying the friendly skies these days so it’s no surprise that airline stocks traded broadly lower, with a some dropping to fresh multi-year lows.
Before the sharp decline in travel amid covid-19, Fort Worth, Texas-based American Airlines and its regional carrier, American Eagle, operated 700 flights per day to nearly 350 destinations in more than 50 countries, according to the company, Investors reported.
American Airlines Group Inc. stocks recently closed at the lowest price since it started trading in its current form in December 2013, Marketwatch reported.
“Most airline managements are realizing that domestic traffic will be slow to recover, in part because the country is opening at different times,” Cowen analyst Helane Becker wrote in a note to clients. “Until various quarantines are lifted and most people get back to work we do not see any recovery for air traffic.”
With so little revenue coming in, the airlines reached an agreement with the federal government on April 15 for a $5.8 billion bailout to help keep its employees on the payroll.
“To help save cash, the carrier said that nearly 39,000 employees have opted for early retirement, a reduced work schedule or partially paid leave,” Investors reported.
Still, while the government aid will likely get airlines through the next three to six months, air-travel demand won’t get back to 2019 levels for another four to five years, according to Becker.
American wasn’t doing great even before the pandemic due to the global grounding of the Boeing 737 Max. The fatal Ethiopian Airlines crash in March 2019 and a similar crash of Indonesia’s Lion Air in October 2018 together killed 346 people.
“Bottom line, American Airlines stock isn’t a buy right now. It suffers from weak technicals and fundamentals along with devastated travel demand,” Investors reported.
Like all other airlines, Delta Air Lines has been drastically affected by the covid-19 pandemic. But according to experts, Delta still stands out as a favorite for investors.
“Delta is an interesting airline stock because it doesn’t have the best balance sheet, but it has arguably the most upside if airline traffic improves over the coming quarters,” The Motley Fool reported.
Still, the pandemic has caused major losses for Delta. Recently it announced that about 70 percent of its 885 aircraft are grounded. It has also cut second-quarter 2020 flights by about 85 percent. The company expects that its own revenues in Q2 2020 will be about 90 percent below Q2 2019 levels, The Motley Fool reported.
Company shares fell near to a 52-week low after Warren Buffett announced the sale of Berkshire Hathaway’s entire stakes in Delta, CNBC reported.
“I hope I’m wrong,” Buffett said when discussing Berkshire’s airline purge. “The future is much less clear to me how the business will turn out for absolutely no fault of the airlines themselves.”
Buffett added more than 5 million Delta shares in 2019.
Many observers feel Delta has a great change of rebounding, although the CEO said recently it would take about three years to regain its footing. Still, “Delta was arguably the best airline going into 2020,” The Motley Fool reported. “Both on a percentage basis and in terms of absolute values, Delta grew its net income and free cash flow (FCF) more than Southwest, United, or American Airlines over the past three years. In short, Delta has been the elite cash cow of the industry.”
Delta did get a boost from the government bailout. The agreement with (the) Treasury includes $5.4 billion from the payroll support program. The payment includes an unsecured 10-year low-interest loan of $1.6 billion, and Delta will provide the government with warrants to acquire about 1 percent of Delta stocks at $24.39 per share over five years, the company said.
Looking at its past and its potential future, stock analysts seem to think an investment in Delta would be a good move.
“With the stocks down over 60 percent in 2020, I think a long-term investment in Delta is wise if the assumption is made that a rebound could take years,” The Motley Fool reported. “That being said, investors can take solace in knowing that Delta is one of the best-positioned airlines in a war of attrition where only the fittest airlines survive.”
Ridesharing company Uber has seen a 50 percent decrease in revenue and has plans to cut 20 percent of staff. One bright note for the company has been it’s food delivery service, UberEats, which has seen a spike during the pandemic.
Uber’s revenue from passenger rides, after the payment of drivers, is expected to slump to $450 million the first quarter of 2020 from $800 million in the fourth quarter of 2019, Capital.com reported.
To help with its losses, Uber is reportedly planning to slash around 20 percent of the company’s employees, The Information has learned. This could mean more than 5,400 of Uber’s 27,000 employees would be out of a job.
Unlike Uber’s ride-sharing division, Uber Eats has seen a boost. In March alone, Uber Eats saw a 30-percent surge in customers signing up for the service, Forbes reported. This is expected to increase.
Billionaire short seller Jim Chanos said he hasn’t been impressed by Uber or the gig industry as a whole.
“I think the gig economy companies are going to come out of this harmed, not enhanced,” Chanos, founder of Kynikos Associates, told CNBC’s “Halftime Report.”
“I know there’s a body of thought that oh, well everybody will just do food delivery and we’ll all take Ubers and no one is going to buy a car again, and I think the flip side of it is that the labor pool issue for the gig economy companies is going to loom very very large coming out of this crisis.”
But Uber has been looking for help. Uber CEO Dara Khosrowshahi appealed directly to lawmakers and Trump to secure unemployment benefits for gig economy workers like Uber drivers.
Uber, along with other gig companies, oppose measures to reclassify workers as employees, arguing it would strip them of flexibility and supplemental income they enjoy. Uber is challenging a new California law that aims to reclassify its workers along with delivery service Postmates, CNBC reported.
“I think both political parties are going to be looking at that pretty hard coming out of the crisis to enhance corporate responsibility in lots of different ways, whether it’s keeping employees as independent contractors, whether its restricting buybacks,” Chanos said.
Things are bad for travel companies. The industry has taken a major hit from the covid-19 pandemic and it is expected to take anywhere from two to five years to rebound, experts say.
Travel-booking site Expedia generated about $12 billion in revenue in 2019, but sales evaporated amid global travel restrictions and stay-at-home orders tied to the pandemic, The Street reported.
Recently, the company’s stock dropped 9 percent as travelers canceled trips. In February before the coronavirus had reached a global pandemic, Expedia said it expected “a $30 million-to-$40 million impact on profits from the coronavirus outbreak,” Geekwire reported.
Shares of Expedia fell more than 40 percent in March alone, Geekwire reported.
Although companies are not legally required to provide earnings guidance to investors, it is common practice for many to do so.
“As covid-19 has rapidly spread from Asia to Europe and North America over the past few weeks, travel trends have continued to worsen. It remains difficult to predict how long this pandemic will persist, and given the lack of visibility on our trends we’ve decided to withdraw our 2020 guidance,” Chairman Barry Diller and Vice Chairman Peter Kern said in a statement.
There is probably more bad news to come for the Seattle-based company.
“RBC Capital Markets analyst Mark Mahaney lowered estimates for Expedia Group’s key financial results, predicting a decline of 18 percent, or more than $470 million, in the company’s first quarter revenue vs. the same period last year,” Geekwire reported.
Expedia started making cost cutting moves early. In early February, the company slashed 3,000 jobs, saying it had been “pursuing growth in an unhealthy and undisciplined way” and needed to regroup.
To help handle its debt, Expedia is raising $3.2 billion in new capital — $1.2 billion will be in private placement of perpetual preferred stock and $2 billion will be in new debt financing, CNBC reported.
According to Expedia, the new funds will strengthen its financial flexibility and liquidity position.
Listen to GHOGH with Jamarlin Martin | Episode 70: Jamarlin Martin Jamarlin goes solo to discuss the COVID-19 crisis. He talks about the failed leadership of Trump, Andrew Cuomo, CDC Director Robert Redfield, Surgeon General Jerome Adams, and New York Mayor de Blasio.
Credit card companies are bracing for the fallout from the covid-19 pandemic. Capital One has been hit by users skipping their credit-card payments as the coronavirus crisis has affected their paychecks. Stocks are suffering.
“Many large card issuers including Capital One are letting borrowers pause their credit-card payments for a month or longer. Some are lowering or waiving late fees and interest charges, or even forgiving portions of customers’ balances,” Market Watch reported.
Analysts expect the coronavirus crisis delinquencies and charge-offs will soar later this year.
Capital One, which has about 120 million credit-card accounts in the U.S., according to the Nilson Report, said it enrolled 1 percent of its active card accounts into deferral programs, Market Watch reported.
“For the next two years or so until everything settles, (credit cards) will be much less profitable and more risky,” Brian Riley, director of credit advisory services at Mercator Advisory Group, told Pymnts.
Capital One reported a loss of $1.3 billion in the first quarter. But, this includes a $3.6 billion build in its allowance for loan losses, The Motley Fool reported.
Yet in late April, Capital One surprised the stock market and was a standout, with shares up by about 8 percent.
“Credit card debt is generally more recession-prone than other common loan types, so Capital One has been one of the most beaten-down bank stocks in the market,” The Motley Fool reported. “However, the company’s numbers, loss reserve build, and management comments seem to have reassured investors, at least for the time being.”