It is pretty surprising how the world adapted to this new COVID-19 “normal” and in the US, accepting wearing masks, keeping social distance and avoiding risky behaviors, are parts of this new normal. And the future remains uncertain. In fact, nobody really knows how the COVID-19 timeline finally “concludes” — hopefully, it is via a cure or a vaccine, or the virus mutates into something benign.
What is true, is the World’s understanding and adaptation to COVID-19 is rapid and this positive self-reinforcing dynamic is what will lead to rapid repair. We have written previously about how corporates rapidly shed cost after the GFC and re-attained peak EPS with 10% lower sales — and we see this happening in this cycle as well.
But the bigger story is the adaptability of the US consumer. Even Scott Gottlieb, the former FDA Commissioner, noted on CNBC today that he did not expect the US to shut down again, in the event of a second wave. Rather, the US consumer simply lives with the virus.
Source: CNBC
There is rapid recovery around consumer travel bookings and rapidly diminishing fear around travel. Our commentary below cites ongoing surveys by Destination Analytics and ADARA analytics. And both show resilience in leisure travel, especially the perceptions on cruise line perceptions and theme parks. And if this is true, this further strengthens the case to OW the travel-related “epicenter” stocks. We realize they have already had a prodigious move, but as our head of Technical Strategy, Rob Sluymer, noted yesterday, he is buying cruise lines and casinos here (see the end for his analysis). We come up with 14 stock ideas, all of which are in the S&P 500.
The large-cap tickers are:
– CCL, WYND, WYNN, MGM, LVS, HLT, NCLH, EXPE, UAL, DAL, LUV, ALK, SIX, DIS
– Casinos
– Cruise lines
– Theme parks
– Online Travel Agencies
– Airlines
This reinforces our recommendation to use “less barbell” and outright OW Cyclicals. Again, this is echoed by Rob Sluymer and by our Head of Global Portfolio Strategy, Brian Rauscher.
POINT #1: Long Island, NY enters Phase II Wed, epicenter is emerging from nadir. Total USA cases flat but testing down 3.7%
So far so good on USA COVID-19 cases. While there are general reports of a second wave rise in states, the gains are being lost in the overall ebbs and flows of daily case volatility. And as we wrote about yesterday, the daily hospitalizations are trending down, with the exception of Arkansas.
– Total USA cases were essentially flat at 17,340 (+412) and still down 52% from the peak 46 days ago.
– Total tests were down 3.7% to 396,610, so the drop in reported confirmed cases can be largely attributed to this.
Daily changes are noisy and mid-week, especially.
Source: COVID-19 Tracking Project
But even the 7D delta, which smooths out the day by day, especially weekend lags, is showing big drops today. Basically, despite the easing stay-at-home restrictions and despite the protests, we have not seen a daily surge in new cases.
Source: COVID-19 Tracking Project
Long Island, a suburb of NYC, is entering Phase II on Wed, really emphasizing how far NYC has come along. Phase II means outdoor dining is open and if all goes well, Long Island will be Phase III by June 24th.
Source: NY Gov office
Even New Jersey is moving suddenly faster and is canceling shelter at home restrictions. NJ is part of the tri-state area. And Connecticut already moved to Phase III-like easing. So the full tristate NY area is open.
Source: Governor office
We want to keep an eye on Texas, but remember, spillover from Mexico border is leading to surges in TX, AZ and CA
CA nor AZ is not reporting surges, but these 3 border states are seeing continued spillover. And so it bears watching
6 states reported a 1D rise in cases:
Texas 1,637 vs 638 (1D) +999
Louisiana 562 vs 234 +328
Indiana 410 vs 226 +184
Georgia 752 vs 599 +153
Pennsylvania 493 vs 351 +142
Florida 1,096 vs 966 +130
Total 6 states +1,936
5 states reported a 1D drop:
Illinois 797 vs 1,382 (1D) -585
California 2,170 vs 2,507 -337
North Carolina 676 vs 938 -262
Arizona 618 vs 789 -171
Mississippi 341 vs 498 -157
Total 5 states -1,769
Source: COVID-19 Tracking Project
The percentage of USA with cases 75% off the peak is now up to 40% and seems to be trending higher…
The good news is the diffusion, or measure of % of counties (based on population) reporting cases 75% off their highs is steadily rising. It is now at 40% which is up from 33% a month ago.
– Daily cases are not collapsing across the US but seem to be settling into a slow burn.
Source: Johns Hopkins
Total confirmed cases is down today and that does explain the “low” number of the new cases. Daily movements in tests numbers is due really to lags in reporting, as this is based on reported test results.
Source: COVID-19 Tracking Project
Source: COVID-19 Tracking Project
POINT #2: More signs of an extremely resilient US consumer. Could travel possibly recover to pre-COVID-19 before year-end?
Rapid recovery in TSA travel metrics suggests recovering pre-COVID-19 traffic by August 2020…
The TSA has provided daily traveler throughput (widely reported) and as the chart below shows, after a massive 97% drop, traffic has since 5X to about ~430,000 daily travelers. Our head data scientist, tireless Ken, put a trendline on the data, and it is quite interesting.
– if trends continue, total USA traveler throughput could recover to pre-COVID-19 levels by August 2020.
Source: TSA
We realize this sounds ludicrous. And we do not necessarily think about what will happen. But the rising mobility of Americans suggests that industry experts may be too negative, or conservative on the rate of travel recovery. For instance, this recent survey by Longwood shows that 82% of Americans will alter travel plans. And surveys like these are reasons we see travel experts suggesting it may be years before traffic recovers.
Source: Longwood International
Incrementally, we are seeing rapid changes in consumer perception of risk… this matters more, than a “point in time” measure
Consumer perception around travel is bound to change in the next few months, and this change in perception will govern behavior. I think this is sometimes forgotten by industry experts, with a tendency for many to talk about future trends as if there will not be improvements around COVID-19 and treatment:
– a vaccine or cure could be developed
– new procedures may be found that more effectively limit the spread
– new equipment could kill the virus, making gatherings safer
– consumer’s own “fear” may diminish, resulting in greater engagement
Any of those above factors would change the trajectory at which consumers resume pre-COVID-19 activities. It is potentially one reason we saw markets rise so strongly Monday, as the WHO story about asymptomatic patients not being contagious is an example of the above.
Consumers’ perception of the safety of travel is incrementally improving, pretty rapidly…
Destination Analytics (destinationanalytics.com) has been surveying >1,200 Americans weekly since March 15th, 2020. And their surveys ask consumers about their thoughts, feelings and perception about travel. I find this survey particularly useful, because:
– it is a continuous series, so we can measure and see change by week
– the survey asks specific questions about different types of travel
The latest survey results are posted below. The survey asks the “% somewhat unsafe or very unsafe” for various activities. The current survey shows a few interesting things:
– The “safest” activity is outdoor recreation, hiking or biking, with only 20% seeing it “unsafe”
– Road trips are also “safest”
– The least “safe” are travel outside the US and cruises, where 70% see cruises as “unsafe”
Source: Destination Analytics week of June 5-7
…But % seeing cruises “unsafe” down 10% from >80% in April 3-5. In other words, % seeing cruises safe jumped from <20% to >30% in 2 months
This is where the change in “% unsafe” is quite interesting. At the height of the crisis, >80% of the 1,200 respondents saw cruises as “unsafe” and this is down 10% to 70% now. In other words:
– April 3-5, <20% of Americans saw cruises as “safe” (100% – “% unsafe”)
– June 5-7, >30% of Americans saw cruises as “safe”
– this is a >10% rise in Americans seeing cruises as “safe”
It would be helpful to know the baseline of this survey pre-COVID-19, as I think many Americans already saw risks in cruises given the various bugs and viruses that proliferate on cruise ships. And cruising appeals to specific demographics, which by the way, is increasingly including millennials.
But the point of this is to say that cruise industry is benefitting from improvement perceptions. If one-third of survey people seeing cruises as safe, that is a large cohort.
Hotel booking volumes have rapidly recovered as well, per data by ADARA Analytics
ADARA’s Traveler Trends Tracker also shows a massive rebound in hotel booking volumes as shown below. The data is for domestic trips and as you can see, we have seen “Leisure – family” booking recover to 82% of pre-COVID-19 levels.
– this clearly benefits family destinations, including theme park companies, etc.
Again, we are seeing evidence of an extremely resilient US consumer.
Source: ADARA Analytics
POINT #3: Parabolic COVID-19 surge in India+Pakistan emerging as “hot zone” while Brazil remains global epicenter. Mortality rates are very low in both regions
USA is no longer the epicenter…
Even as the US is seeing daily COVID-19 cases drift lower, total global COVID-19 cases have remained around 100,000 per day. The case growth, as we mentioned in prior commentaries, is coming from Latin America primarily. But in the past week, a surge in cases in India and Pakistan are showing that region is the new “hot zone” for case growth.
Source: Johns Hopkins
Parabolic COVID-19 surge in Pakistan + India. Daily cases nearly 2X in past few weeks to ~19,000 per day…
We have a quilt below showing the regional daily cases (3D avg) at two-week intervals. Looking at the data this way helps us understand where the “hot spots” are, both on an absolute basis (highest to lowest) but also see the changes (new hot zones):
– Latin America (led by Brazil) continues to see the highest daily cases at ~39,000/day, which is 2X USA
– India + Pakistan + Bangladesh is seeing ~19,000 cases/ day, nearly 2X from two weeks ago and 3X from 3 weeks ago
Clearly, there is a parabolic rise in cases taking place in that Asian region.
Source: Fundstrat and Johns Hopkins
The total population in these 3 nations is 1.8 billion people, or 6X the size of USA…
Total cases in these regions is about 400,000, so a mere fraction of the 7.3 million cases globally. But as the quilt above shows, these areas are seeing rapid case growth. And even the total death tally of ~10,000 is a fraction of the 413,000 globally.
– India is more than half of the total cases and the new daily cases.
– Maharashtra is the state in India with the greatest number of cases, representing ~65,000, or 1/3 of India’s cases.
Source: Fundstrat and Johns Hopkins data
Maharashtra is located in the western peninsular region and is second-most populous state and Mumbai is the capital. As to why this region is the hardest hit, it is not clear to us.
The region is transitioning from Summer to Monsoon season (cooler) (starts July)
According to the India travel bureau, the region is transitioning away from Summer (ends June) towards Monsoon season.
– Summer described as hot (25 to 45 deg Celsius)
– Monsoon season is described as still Wet, Hot and Humid (30 to 35 Celsius)
So the weather is still quite warm, but not as hot as Summer. If the weather plays a role in transmission, we might see cases continue to grow during monsoon season.
http://delhitourism.gov.in/delhitourism/aboutus/seasons_of_delhi.jsp
Cases per 1mm is still low for the region as a whole, and COVID-19 has spread faster in USA, Brazil, UK and Italy
When comparing the prevalence of COVID between regions, it makes sense to look at cases/ 1mm residents (or Pops). We compare these 3 nations to the previously worst-hit regions of USA, UK, Italy and Brazil.
– On a daily cases/1mm pops, India, Pakistan and Bangladesh have a quite low prevalence
– But given their total regional population is 1.6 billion people, the total number of cases is large
– If trends continue, India + Pakistan may surpass the USA within a few days
– And could surpass Brazil in a few weeks.
Source: Johns Hopkins and Fundstrat
Mortality rate is quite low at 1.4% to 2.8%, compared to 5% USA and ~14% for UK and Italy
Fortunately, the mortality rate is considerably lower in these regions. The trend of mortality rate, or case fatality rate (calculated as deaths/ confirmed cases) is 1.4% (Bangladesh) to 2.8% (India).
– These are considerably lower (see below) than the developed nations
– Brazil’s CFR is around 5.2%, so again, these regions are seeing better outcomes.
Source: Johns Hopkins and Fundstrat
I am not entirely clear why these 3 nations have considerably lower mortality rates. It could be due to a much younger demographic as more than 50% of India’s population is below age 25 and 65% are below age 35. And it could be a detection issue if deaths are not recorded. We are monitoring developments here.
STRATEGY: If consumers are losing “fear,” there are lots of opportunities still in travel-related “Epicenter” stocks, 14 ideas…
The strong relative performance of travel-related “epicenter” stocks sure seems to support the idea that we should expect positive changes in consumer behavior. In fact, this is what the surveys and traffic data discussed above show. We realize “epicenter” stocks have already risen fiercely, but we also know they are under-owned, because these are not the typical growth stocks in many favored styles.
– But many of the “epicenter” names are high-quality companies with defensible franchises
– Many have addressed credit risk, via debt issuances
In fact, this is also the recommendation by our Head of Technical Strategy, Rob Sluymer, who is recommending investors buy “Casinos” and “Cruise lines”.
Rob Sluymer’s comments (more charts are shown at the end):
“Casinos have broken out above Q2 trading ranges – accumulate near-term pullbacks.”.
“Cruise lines have also surged above Q2 trading ranges – accumulate pullbacks.”
14 Travel “epicenter” stock ideas, combining the analytics of Quant (DQM by tireless Ken), Global Strategy (Rauscher) and Technicals (Sluymer)
We combined the attractive names coming from a combination of:
– DQM Quintile 1, quant model powered by our data science team
– OW by Brian Rauscher, Global Head of Portfolio Strategy
– OW by Rob Sluymer, Head of Technical Strategy
And we come up with 14 stock ideas, most of them are in the S&P 500. The large-cap tickers are:
– CCL, WYND, WYNN, MGM, LVS, HLT, NCLH, EXPE, UAL, DAL, LUV, ALK, SIX, DIS
– Casinos
– Cruise lines
– Theme parks
– Online Travel Agencies
– Airlines
Source: Fundstrat
