Subscribe
Featured Image

Using Event Data to Identify the Re-Opening Winners

Companies and Markets

By Christine Short  |  March 18, 2021

We are more than a year into the global COVID-19 pandemic. It’s hard to believe considering that it was in March of last year when many of us checked out of our offices thinking we’d be back in a few weeks once COVID-19 was brought under control. Little did we know that the world was changing and our way of life would be so sharply disrupted for the coming 12+ months.

Those were scary times with so much uncertainty. People around the world hunkered down and created makeshift home offices and classrooms. We also had to cancel our vacation and travel plans. Businesses nixed conferences and in-person meetings, greatly impacting so many industries.

Fast forward to today. There is good news and light at the end of the tunnel as drug makers continue to provide generally positive vaccine developments. Shots are being administered around the world and case counts appear to finally be on a sustained decline as spring approaches in the U.S. and Europe. President Biden even said that there will be enough shots for all American adults by the end of May—two months earlier than expected.

A Return to Normal Is Coming

Many corporations remain cautious about returning to the office, but families are planning summer getaways in anticipation of some return to normalcy in the third quarter. The latest Institute for Health Metrics and Evaluation (IHME) COVID case model predicts the pandemic will be quite isolated versus how pervasive it was at the turn of the year. If that outlook verifies, and we all hope it will, pent-up demand as a result of stay-at-home policies and immense fiscal stimulus could mean a boom for travel, leisure, and entertainment companies while the “stay-at-home” plays of 2020 could indeed be a trend of the past. Let’s explore important corporate events that will shed light on the upcoming grand re-opening.

Figure 1: February 25 IHME Estimated COVID-19 Daily Case Count History and Projection

IHME Estimated COVID-19 Daily Case Count History and Projection

Source: https://covid19.healthdata.org (as of March 5, 2021)

Using Data to Profit from the Grand Re-Opening

Corporate event data from Wall Street Horizon can help identify which companies could be the biggest beneficiaries of increased recreational spending. Earnings reports and manager commentary are important, but so too are analyst and investor days. Wall Street Horizon tracks and highlights which events to pay particular attention to so institutional traders and investors can be ahead of the news stories that are sure to be reported after the fact.

The obvious sector that stands to benefit from restrictions being lifted across the developed world is Consumer Discretionary. Below are some notable industries within the sector:

  • Hotels, Restaurants, & Leisure
  • Leisure Products
  • Textiles, Apparel, & Luxury Goods
  • Automobiles

Other industries to watch include Banks in the Financials sector, Entertainment in Communications Services, Health Care Providers & Services in Health Care, and Airlines and Road & Rail in Industrials. Some stocks in the Energy and even Real Estate sectors could benefit from broader macro trends in commodity prices and movements in interest rates.

Understanding the Risks

The stock market is a forward-looking mechanism. The most apparent winners of a broad economic re-opening have already seen a significant price appreciation. The market began to shift in earnest during the third quarter of 2020 when high-flying tech stocks peaked in early September, giving way to small-cap and value equities. We saw rising interest rates and increasing commodity prices late last year, too, boosting returns of some stocks in the Financials and Energy sectors.

Figure 2: Sector Returns Since September 4, 2020

Sector Returns Since 09042020

Source: https://stockcharts.com (as of March 5, 2021)

Therefore, the market has discounted at least a portion of the grand re-opening. We can draw a parallel to this past earnings season—companies that posted better-than-expected earnings per share experienced a negative stock price reaction for the first time since the fourth quarter of 2019. Wall Street Horizon discussed this phenomenon throughout reporting season in our Event Data Outlook report. Traders need to dig deeper into the data to find the surprise winners. Paying close attention to the words and tone of executives at corporate events is one way to help identify the next set of winning trades.

Clues from Dividend Resumptions

Dividend policy is among the most important mechanisms by which companies signal to the investing world that business conditions are improving or turning worse. U.S. firms in particular often put high importance on maintaining and increasing quarterly dividends as a sign that there is optimism for future profits. Dividend cuts and suspensions are seen as a last resort and are usually met with heavy selling pressure immediately after the news breaks.

We notice an interesting theme in recent dividend resumptions. Gap, Inc. (GPS), Ross Stores, Inc. (ROST), Kohl’s Corporation (KSS), and Steven Madden, Ltd. (SHOO) are four Consumer Discretionary retailers that announced resumed dividend payments in recent weeks.

These four apparel retail companies are telling the market that better times are on the horizon. It could also mean that consumers might shift back to brick-and-mortar shopping versus staying at home and shopping on Amazon. The return to the office is an obvious tailwind for these plays, but the question traders must ask themselves is, “how much is priced-in?” given the massive rally over the last six months.

Performance-wise, it’s been a mixed bag for the apparel retailers. Gap, which Wall Street Horizon profiled last fall for its successful pivot to online sales, has been the best performer after falling hard during the COVID-crash a year ago. Kohl’s has also been a recent winner, tripling in value since the third quarter of 2020. Ross Stores and Steven Madden have been the relative losers thus far.

Figure 3: Gap, Kohl’s, Ross Stores, and Steven Madden Equity Performance since January 1, 2020

Gap Kohls Ross Stores Steven Madden Equity Performance

Source: http://stockcharts.com (as of March 5, 2021)

Investor Events from Stay-at-Home Companies

While apparel retailers should benefit from shoppers refreshing their work wardrobes after a year of working from home, there are stay-at-home plays that hold investor events in the coming weeks.

DocuSign, Inc. (DOCU), Costco Wholesale Corporation (COST), and NVIDIA Corporation (NVDA) were three names that benefitted from the pandemic. Each of these firms will hold important corporate events in the coming weeks.

DocuSign might be the most obvious winner from the accelerated trend to remote work. The Information Technology stock was one of the leaders in 2020 as workers went from hitting CTRL+P on their keyboards to simply clicking through PDFs and hitting “send.” Recent price action has been poor, however—which is a theme we see in many of the stay-at-home stocks. DocuSign will hold its inaugural Financial Analyst Day (Virtual) 2021 in conjunction with its Momentum customer conference on March 24 where investors should hear commentary on the firm’s future. In a press release on February 23, DOCU said its management team will discuss product innovation and its go-to-market strategy, among other topics.

Turning to the Consumer Staples sector, who can forget the long lines at Costco stores a year ago? While we can joke about hoarding toilet paper today, it was a scary time seeing grocery store shelves empty last March and April when uncertainty and fear were so pervasive in the U.S. and Europe. COST reports its March 2021 Sales Results business update on April 7. Comparable store sales turn much more challenging for food retailers starting in March considering that homemade meals became the nightly ritual across the developed world during the period of heavy social restrictions. Today, there are signs that consumers aged 73 and older are venturing out now vaccinations are underway and accelerating (Figure 4). Expect difficult comparisons to continue as younger individuals get the vaccine ahead of the summer. Looking at the stock price action in Figure 5, COST began to roll over late last year and is solidly in the red to start 2021.

Figure 4: Restaurant Spending: Traditionalists (Aged 73-92) Have Seen an Increase Relative to Other Age Groups since Vaccinations Began

Restaurant Spending by Demographic Group

Index, June 2020 Average = 1 for each Demographic Group, 14-Day Moving Average

Source: Bank of America Global Research and Internal Data (as of March 5, 2021)

Finally, let’s look at the hot semiconductor industry. NVIDIA is a $300 billion market cap behemoth in the IT sector and was another work-from-home and virtual business winner. The stock price had a technical breakdown recently after a false breakout in February. Longer-term fundamental investors will look to the April 12 Annual Investor Day 2021 event. NVIDIA recently reported fourth quarter 2020 financial results which showed revenues jumping 61% and profits up 64% year-on-year. Both the top- and bottom-line figures were ahead of analyst estimates. A major driver of its massive profit was the trend to gaming that surged during the pandemic’s lockdowns. Supply chain disruption was another feature of the business world that impacted NVIDIA (and many other firms dependent on materials). NVIDIA relies on semiconductors, and there is currently a global shortage that was important enough for President Biden to address. Expect the topics of gaming, cryptocurrency mining, and supply issues within the semiconductor space to be discussed at the April 12 Investor Day.

Figure 5: DocuSign, Costco, and NVIDIA Equity Performance since January 1, 2020

DocuSign Costco NVIDIA Equity Performance

Source: http://stockcharts.com (as of March 5, 2021)

Conclusion

Investing is like driving—the windshield is bigger than the rearview mirror—meaning the future is more important than the past.

2020’s stay-at-home trends and stock market winners are history. Market participants now look ahead to the grand re-opening of the developed world’s economy. 2021 is off to a hot start for many stocks that stand to benefit from strong cyclical economic growth and pent-up demand from consumers who just want to get out and just enjoy life again.

Traders must balance risk and reward among stocks within sectors and industries that are most affected by the shift from a pandemic to a post-pandemic world. In addition to dividend signaling, corporate events in the coming weeks could be the best venues to help identify what executives see happening for the balance of this critical year.

For more information on Wall Street Horizon, visit the Open:FactSet Marketplace.

The material presented is for informational purposes only. The views expressed in the material are the views of the author and are subject to change based on market and other conditions and factors; moreover, they do not necessarily represent the official views of Wall Street Horizon and its affiliates.

This blog post has been written by a third-party contributor and does not necessarily reflect the opinion of FactSet Research Systems Inc.

New call-to-action

Christine Short

Vice President of Research, Wall Street Horizon

Ms. Christine Short is Vice President of Research at Wall Street Horizon. In this role, she is focused on publishing research on Wall Street Horizon event data covering 8,500+ global equities in the marketplace. Her research has been widely featured in financial news outlets including regular appearances on networks such as CNBC and Fox Business to talk about corporate earnings and the economy. Ms. Short earned a BA in International Relations and English from Fairfield University.

Comments