Post-Covid Stocks: 5 Best Stocks for the Economic Reopening

The pandemic has exacted a horrible toll on America’s economy. At the height of the covid-19 recession, more than 10 million jobs were lost. Homelessness and food insecurity have skyrocketed during the past year.

However, it’s easy to forget we’re in the middle of an economic crisis by looking at your brokerage account. Boosted by a new and fearless group of stay-at-home retail investors, technology and growth stocks have exploded during the pandemic!

The good news is the economy is slowly healing and the pandemic’s end seems in sight. President Joe Biden recently shorted the timeframe for American adults to get the covid vaccine to the end of May. His $1.9 trillion (yes, with a “T”) covid relief bill is now considered a fait accompli with Biden predicting $1,400 “stimmy” checks going out by the end of this month.

Wall Street has transitioned accordingly. “Safe” U.S. treasuries have sold off, pushing yields on the benchmark 10-year nearly 65% higher since the start of the year as the “smart money” is looking for riskier assets to make more money post-covid.

So naturally, you’d expect growth stocks to continue their rocket-ship growth this year…and you’d be mostly wrong.

High-growth names that led during the pandemic like Zoom, Peloton, and Okta are each down more than 20% in the last month alone!

It’s clear there’s something going on.

Economic Reopening Stocks are Winning

Source: Getty Images

Not all stocks performed well during the lockdown. Covid bifurcated the market with growth and technology stocks exploding while older industries like energy and transportation languished.

The reverse of that trade is now occurring. As more investors become hopeful for the prospects of returning to normal, the market is selling off richly valued stay-at-home tech stocks in favor of companies whose underlying business will significantly improve from a post-covid economy. But you’re not too late to find reopening stocks with a long runway for growth.

With the supply of Covid vaccine scheduled to scale tremendously across March, J.P Morgan was recently emboldened enough to say the pandemic could be “effectively over by April.”

Combine the surge of vaccinations, the loosening of Covid restrictions in states as different as Texas and California (albeit, to varying degrees), and the surge of money that could hit the economy as consumers are ready to vacation, dine out, and resume normal life once again, and you can see why economic reopening stocks could be a theme throughout the rest of the year.

In fact, here are five stocks – two lower-volatility large cap companies and three small cap companies, including one that will likely shock you – we think will take advantage of the improving economy…and beyond.

2 Large Cap Post-Covid Stocks You’re Overlooking

General Motors (GM)

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If you think General Motors is a boring last-century stock, you haven’t been paying attention to CEO Mary Barra. In fact, GM might be a better EV buy than even Tesla stock as it has an audacious goal to go all electric by 2035.

The company is putting their money where their mouth is, committing $27 billion by 2025 to win the EV race. In contrast to many of the EV startup SPACs that have one or two models, Barra’s company has committed to 30 new electric vehicles by 2030.

Despite having the capital and knowledge to win significant EV market share, investors continue to treat the carmaker as a last-century relic. General Motors stock trades at a price-to-sales ratio of 0.62 times versus Tesla that trades at 20.5 times.

GM shares aren’t quite as cheap as they once were. Barra’s new focus is starting to earn praise among Wall Street insiders. Shares of GM are up 122% in the last 1-year period, but there’s cause to believe the move is just getting started.

In addition to the valuation discount mentioned above, General Motors will benefit from reopening and having more people go back to work. It’s well known that consumers postpone large purchases like automobiles during the recession. As more have to commute to work and the economy improves, demand should explode for automobiles.

Reopening will be good for GM in the short run and its pivot to EVs should lead to a decade of growth.

Airbnb (ABNB)

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Don’t you just miss the fun of travel? If you answered yes, you’re not alone. America is increasingly the land of pent-up wanderlust.

According to president and CEO of the U.S. Travel Association Roger Dow in a March press conference, nearly 80% of Americans have plans to travel within the next six months and 60% of those are planning now. It’s pretty clear once America is properly jabbed, we’re all taking a much-needed vacation.

Unfortunately, where they’re all going to stay is a critical question. The pandemic has dealt a harsh blow to many hotel operators, most notably among the smaller mom-and-pop operators. The hotel industry is exceedingly cutthroat on the pricing side with operators often taking on significant debt to finance buying the underlying property.

As a result, we’re amid a hotel-pocalypse! The Wall Street Journal estimated that nearly 20% of hotels in New York could permanently close due to covid. The combination of increased demand from travelers and lower hotel supply creates increased prices, which will encourage more renters on Airbnb’s platform.

The company’s light-asset toll-road like business model will directly benefit from increased usage during the post-pandemic surge and going forward as more travelers consider using it as a replacement for traditional lodging.

3 Small-Cap Post Covid Stocks with Huge Potential (DESP)

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Argentinian-based Despegar might be a tiny stock, but it has huge potential. The online travel agency is the biggest in Latin America, a market that will continue to grow along with the burgeoning middle class.

The Latin American company has several unique characteristics that give it a clear advantage over non-native OTAs (online travel agents) like Booking and Expedia, most notably trip payment and financing.

Despegar was able to shape the Latin America OTA market by forming deep relationships with banks to offer installment payment plans – some interest free – and more than half use this type of financing.

An additional advantage is that Latin American travel shoppers are also less likely to purchase travel over the internet (just 33% will) than in the developed regions of the U.S and Europe (50%). Despegar’s regional call center operations throughout Latin America will deepen the customer relationship and lead to repeat business whether online or via telephone.

Despegar has a bright future as disposable incomes grow throughout Latin America and internet penetration and travel demand increase over the coming decades, and like Airbnb has the immediate boost of pent-up wanderlust once covid comes under control.

Intellicheck (IDN)

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Whether online or in-person, identity theft is a massive problem. Nearly one in 17 Americans are victims of identity theft with the projected global cost coming in more than $25 billion in the last year alone. In the massive 2017 Equifax breach, 150 million citizens – nearly half of all Americans – had their names, social security numbers, and date of birth exposed!

That’s where Intellicheck’s host of ID authentication solutions comes into play. The company has a 25-year history of working alongside government facilities like military bases and has been the verification provider for DMVs across the US, Mexico, and Canada. However, it’s the company’s shift to provide identity verification services for retailers that will power future growth.

A change in the company’s business model is driving top-line results. The company has changed to a software-as-a-service (SaaS) model that bills according to the price per scan. SaaS revenue has exploded from $2.7 million in 2018 to nearly $9 million in the last 12 months.

The increase in economic activity and in-person shopping post-pandemic should position the company for strong stock gains in the short run and the business model change is poised to deliver long-term gains.

RCI Hospitality (RICK)

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Let’s get this out of the way: RCI Hospitality isn’t for everyone. For those unfamiliar with the holding company, RCI is the owner of 38 upscale adult-themed clubs including Rick’s Cabaret and Jaguars Club, in addition to a line of restaurants. It’s understandable if this isn’t your idea of an ESG-friendly (environmental, social, and governance) business and you’d rather invest elsewhere.

For those unaffected by its business model, RCI has all the hallmarks of a strong business. CEO Eric Langan brings an MBA level of focus to RCI’s operations, focusing on growing free cash flow per share through a combination of proven strategic M&A deals that generate cash-on-cash return of 25%-33% and by strategically buying back shares.

It’s working. RCI Holdings stock has exploded more than 650% in the last five years. Despite those strong returns, it’s likely RCI Holdings will continue to post strong stock gains. First, RCI is only a $620 million company giving it ample room for stock growth if it continues to execute.

Secondly, it’s a no-brainer that the end of lockdowns will benefit its operations, but it also presents RCI with ample M&A opportunities from other gentlemen’s clubs that aren’t as well operated. Look for RCI to further consolidate the space with savvy M&A deals and continue to grow for years to come.

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Pre-covid or Post-covid Investing: Keep a Long-term Focus

In the coming months, if you’re looking for more stocks that could benefit from increased in-person spending, the following industries could be worth further research.

  • Cruise ships: Cruise demand in the second half of 2021 and into 2022 looks extremely robust. However, one piece of warning: many cruise operators significantly increased their share counts during Covid. This dilution could hurt long-term returns even as cruise operators return to strength.
  • Travel: We featured AirBNB and Despegar above, but there are a number of ways to position your portfolio for a rebound in travel. Whether looking at domestic travel sites like Booking Holdings (Nasdaq: BKNG) or Expedia (Nasdaq: EXPE) or destinations like Wynn Resorts (Nasdaq: WYNN) or even Disney (NYSE:DIS), demand for travel should be robust.
  • Entertainment: Covid shifted entertainment dollars from in-person entertainment to digital. That’s been a boost to video game stocks like Roblox (NYSE: RBLX), which saw revenue spike 82% in 2020. However, with in-person entertainment on the horizon, many investors are looking to stocks like Live Nation (NYSE: LYV) or Eventbrite (NYSE: EB). Live Nation owns Ticketmaster while Eventbrite powers ticketing for many smaller events.

However, one piece of warning if you’re rushing out to buy reopening stocks: many are trading for richer multiples than before Covid. For example, Live Nation traded for $75 in early 2020, and today shares are trading hands for $87.

The father of value investing (and Warren Buffett’s mentor) Benjamin Graham once quipped, “in the short-run, the market is a voting machine but in the long-run it is a weighing machine.” While narratives such as reopening are powerful, remember they are subject to the whims and vicissitudes of the market.

In the long run, investors are going to reward great run companies with a history of being good stewards of shareholder capital. We at Millennial Money recommend using these temporary conditions to buy strong companies, regardless of whether the market views them as a stay-at-home stock or a reopening stock.

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