5 Stocks That Plummeted Because Of Corona

Stocks That Plummeted Because Of Corona: What a remarkable difference a few months makes. At the start of 2020, the economy was thriving, and the stock market never looked better.

The Dow Jones Industrial Average hit an all-time high of 29,551.42 on February 12th – a result of the longest bull market in history. Most industries were looking forward to another year of growth and expansion, and unemployment was at a low 3.5 percent in the United States. Just 5.8 million reported being out of work involuntarily.

In March, all of that changed. The novel coronavirus ignited a global healthcare crisis that rapidly translated into economic disaster.

Markets crashed.

Unemployment soared.

And all available resources were directed towards finding effective treatments and developing a vaccine. By the end of April, unemployment reached 14.7 percent in the United States, impacting 23.1 million people.

While there are signs of recovery and many companies are ready to reopen with new safety measures in place, it is clear that some of the hardest-hit will continue to struggle.

Certain industries, such as leisure, hospitality, and retail experienced devastating losses – the sort of catastrophic collapse that may be impossible to reverse.

These are five stocks that plummeted due to coronavirus – and their prospects for short and long-term turnaround.

Occidental Is Debt-Laden But Can Icahn Help? 

Texas-based Occidental Petroleum and its subsidiaries operate in the oil and gas space.

Its three segments, Oil and Gas, Chemical, and Midstream and Marketing work in exploration, development, and acquisition of related properties worldwide.

Unfortunately, Occidental could not have been in a worse position when the pandemic hit, and investors saw share prices fall sharply since the start of the year.

On 2/20/20, Occidental stock was valued at just under $43 per share. In the following weeks, those figures dropped 79 percent.

Peers also saw steep declines, including ExxonMobil (down 50 percent), Chevron (down 53 percent), and BP (down 57 percent).

However, unlike Occidental, ExxonMobil, Chevron, and BP are already recovering. Occidental is having more difficulty getting back to February levels.

Part of the problem is that Occidental recently took on a massive debt-load to acquire Anadarko Petroleum. That might not have been an issue, except that the oil market suffered dramatic setbacks just a short time later.

Of course, no one could have predicted that oil prices would enter negative territory, but that doesn’t help Occidental now.

Analysts are sharply divided on how to move forward with Occidental. The company has enlisted the help of boutique investment bank Moelis & Co. to work out a manageable plan for restructuring its $40 billion in debt.

If unsuccessful, there may be no way back. However, Occidental’s major shareholders include legends like Warren Buffett and Carl Icahn, which is an auspicious sign. If anyone can propel Occidental into recovery, it’s these two.

Online Retail Shopping Crushed Macy’s

New York-based Macy’s is a cornerstone of the traditional retail world. It was founded in 1830, and eventually branched out to include Bloomingdale’s and a variety of specialty stores.

Macy’s establishments have long been shopping mall anchors, and as consumers have transitioned to online shopping, Macy’s has put a lot of effort into meeting new demand.

Unfortunately, it’s been a tough road, and Macy’s has been struggling for some time. In the past five years, revenues have dropped from $28 billion to $25 billion, and the company was essentially on the retreat.

The strategy was to close some stores in an effort to match demand. However, the company simply wasn’t prepared for a scenario in which all stores would be closed – albeit temporarily.

The May 2020 earnings report was grim. Year-over-year sales declined by 45 percent, and share prices have dropped by two-thirds since the start of the year.

Looking ahead, management estimates total operating loss to reach $1 billion for the current quarter.

Essentially, Macy’s has more than $5 billion in inventory, and the only opportunity to turn that into cash is online. With unemployment soaring, the likelihood of massive e-commerce revenue is low.

Certainly, some locations are starting to reopen, but that is no guarantee that consumers are ready to return. That isn’t to say that Macy’s is a hopeless cause, but the outlook is fairly bleak.

Barring a dramatic turnaround, analysts are generally advising investors to stay away from this stock.

Hertz Is Officially Bankrupt

Florida-based Hertz Global Holdings was a pioneer in the car rental industry. It was founded in 1918 with a fleet of 12 Ford Model Ts and rapidly expanded.

By its 100th anniversary, it had roughly 10,200 corporate and franchise locations worldwide and more than half a million vehicles in its United States fleet.

At the beginning of 2020, Hertz was doing reasonably well. Though its debt was fairly high – $17 billion – robust sales signaled a promising year.

In fact, revenues increased by 6 percent in January and February. However, by March, the spread of COVID-19 brought travel to a screeching halt.

Businesses moved to virtual meetings, and vacationers were under strict orders to stay home. That, in addition to a sudden decline in the value of used cars, spelled disaster.

On May 22nd, Hertz filed for bankruptcy, and share prices closed at $2.84. That’s an 82 percent loss in value so far this year.

Most analysts believe that Hertz stock has bottomed out, and there is room for a small bump in coming months. That isn’t to say that buying is a smart decision – only that if you already own Hertz shares, you may be better off holding them a bit longer to see if you can recoup some of your loss.

Caveat emptor is never more appropriate than with Hertz, it’s possible equity shareholders are wiped out entirely.

COVID On Cruise Ships Sunk Carnival

The sudden halt in leisure travel hit the cruise industry hard. In some cases, even harder than other travel-related businesses, because blame for some COVID transmission and related deaths was placed squarely on cruise ships.

Most cruise lines voluntarily suspended operations, in part because the United States, which makes up approximately half of cruise passengers, prohibited cruise ships from operating in its national waters. The earliest possible date for cruise travel to resume is in August.

Carnival has had particularly difficult challenges during the pandemic as compared to its peers. Due to some missteps by the company, media has focused on issues surrounding specific Carnival ships.

Between the devastating damage to its public image and a long list of pending lawsuits, some investors wonder if there is a path to recovery for the company.

After all, share values have dropped by approximately 70 percent since the beginning of the crisis, and Carnival needs one billion a month to operate.

Assuming Carnival can get back on the water in August, will passengers return at sufficient rates to offset the damage of these months?

It seems that a number of high-profile investors, including company insiders, think the answer is yes. They purchased shares in massive quantities when the stock was at its lowest, and they have already profited from their optimism.

It seems they are banking on trends in consumer behavior as it relates to handling of cancelled trips and future bookings thus far.

Approximately two-thirds of passengers elected to reschedule rather than be refunded, and 2021 bookings are within historic levels.

With that said, many analysts are advising against the purchase of Carnival stock for average investors.

Any number of issues could decimate the stock further, including extension of operating restrictions, requirements to operate at reduced capacity, and another incline in global COVID-19 cases.

Even if the company should begin to recover as some currently predict, it could be years before Carnival returns to pre-coronavirus profitability. Buying now is a big gamble, primarily suitable for those who can afford a big risk.

Store Capital Is A Buffett (Not A Market) Favorite

A Buffett favorite, Store Capital wasn’t immune to the downward pressures of the market either. While mall operators and commercial real estate landlords were heavily pummeled by the loss of rental income from tenants, Store Capital was thought to have a more resilient model and balance sheet.

But the baby got thrown out with the bath water. Even Store Capital stock took a proverbial beating due to corona and it’s probably fair to say Buffett’s portfolio, Berkshire Hathaway took a hit too.

However, his ownership of Store Capital is relatively limited compared to his exposure to holdings like Apple and Coca Cola.

Stocks that Plummeted: The Bottom Line 

For most investors, these stocks and others in the same category are a poor choice for building strong portfolios. However, some bargain hunters are willing to take big risks in hopes of realizing big rewards.

Those that have high risk-tolerance – and the ability to survive substantial losses – may consider purchasing these shares at their current low prices. If these companies do eventually recover, shares may deliver value long-term.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.