Profit Pregame

The Pandemic Forces Yet Another Bankruptcy

A popular nationwide pizza chain is the latest restaurant to file for bankruptcy as COVID-19 continues to decimate the industry.

What’s happening?

As we come into what is hopefully the homestretch of the COVID-19 pandemic, a number of businesses continue to feel the pinch.

One of the hardest hit industries has been the restaurant business – and yet another popular chain has been added to the list of victims.

CiCi’s Pizza filed for Chapter 11 bankruptcy on Tuesday, joining the likes of Friendly’s, Sizzler, California Pizza Kitchen, and many, many more.

With high overhead cost, continued lockdowns, and smaller crowds in places where restaurants have been allowed to reopen, I wouldn’t be surprised to see more restaurant bankruptcies before things start getting back to normal.

Yes, we can see some light at the end of the tunnel, and there are some great profit opportunities here, but investors looking to play the restaurant rebound need to be careful.

Here’s what I’m watching for…

Where’s the money?

While it’s not a publicly traded company, CiCi’s serves as the latest warning for anyone looking to jump into restaurants stocks assuming it’ll be smooth sailing from here on out because we’ve begun vaccinations.

Restaurants are still in hot water, and it’s going to be a while – even after the crowds come back – before many can overcome the massive debt they’ve had to take on during the past year.

The stocks at greatest risk are those that rely more on in-person dining and less on delivery or carryout services.

So how should investors proceed in a space that’s still fraught with danger?

The answer isn’t looks a lot different than it might’ve a week ago…

How do I get some?

With a global pandemic raging, we were in uncharted territory even before the events of last week – which saw some of the biggest short squeezes I’ve ever seen in my life.

We’ve seen that large groups of retail investors are actively looking for stocks with large amounts of shorting and going after them. That same practice is likely going to come into play for restaurant stocks, too.

My thoughts on this are to look for any restaurant on the short list, as those stocks are going to rage higher.

Nothing else matters right now, besides what stocks are heavily shorted at least for a week or two. So, the only way to trade rebound plays right now is to look for these names and buy Call options.

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In the Spotlight: In other short squeeze news…

Yesterday, short-sellers of AMC Entertainment Holdings, Inc. (AMC) became the latest casualty in the battle between Reddit investors and Hedge Fund short positions.

Shares of AMC soared over 300% at the open as retail investors piled into the heavily shorted movie theater stock.

Like I’ve said before, eventually these companies that are seeing their stock skyrocket from short squeezes will eventually be corrected by actual performance. I’ll be keeping a sharp eye on the best ways to profit as some semblance of reality sets back into the market. Stay tuned.

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