Whenever a significant global event occurs, the stocks market undoubtedly reflects it. Those who can predict how stock prices are going to change based on these events can make better-informed investment decisions and ultimately make more profit.
It was more than a year ago that the S&P 500 hit the lowest point of the COVID-19 induced market destabilization. Since then, it has steadily increased more than 80% of its value to above 4100. The 80% rise may indicate that the overall market has recovered, however, there are still many industries hard hit from the continuing COVID pandemic.
McKinsey Global Institute and Oxford Economics have modeled various scenarios and have found out it could take five years or even longer for recovery across all industries.
Based on S&P Global Market Intelligence’s analysis, the most impacted industry is, not surprisingly, “Airlines.” With both local and federal travel guidelines across the world, air flights have been significantly impacted. The analysis revealed other hard-hit industries as well, including “Casino & Gaming” and “Leisure Facilities.” Although this is bad news for the industries and those working in similar fields, many investors see this as a great opportunity to invest in related companies and take profits as the industries recover.
Air Canada stocks plummeted more than 70%
For example, Air Canada stocks plummeted more than 70% within February-March 2020. From a low point of $12.41, it is currently near $25, which is a whopping 105% return. It might seem that it is already too late to invest when seeing numbers this large; however, if it goes back to the point right before it crashed ($51.08) it could bring another 100% return. However, many investors have been hesitant to invest in airlines lately, especially since Berkshire Hathaway had sold all of their current positions in airline stocks.
Like stocks, many REITs have also been hard-hit by COVID. REITs are intrinsically tied to rents, commercial gatherings, and real estate. For example, HR.UN took a 60% price hit in just the span of a few months. Since then, it has gone up almost 90%.
Many investors don’t believe “recovery stocks” are the best investment at this time
However, there we must also consider the flip side of the argument before investing. Many investors do not believe “recovery stocks” are the best investment at this time. For one, many months may go by before there is a true recovery, and selling before that, especially if you are strapped for cash, may cost you more than you gain.
You also must keep in mind that many of these companies in these hard-hit industries may be amassing massive debts which will continue to hurt them long after COVID is gone. Indeed, some of these companies may declare bankruptcy if they are not able to stabilize themselves in the current dire economy scenario.
Like any investment opportunity with a huge upside, there are lots of risks involved. Make sure you always do your research before making financial decisions and keep in mind all the risks involved.