Recovery stocks are booming right now. Be careful about jumping in.
Efforts to vaccinate Americans from COVID-19 press on, with over 1.5 million more people in the U.S receiving a dose of the vaccine every day, according to the CDC.
With the worst of the pandemic hopefully behind us, investors have begun to pile back into stocks of some of the hardest-hit companies as they look for rebounds to spell big profits.
That includes big buys on stocks in the airline, theater, and oil industries. To give you a few examples of the buying frenzy…
- Southwest Airlines Co. (LUV) is up roughly 32% since the start of February.
- Exxon Mobil Corporation (XOM) has shot up more than 27% this month.
- And even AMC Entertainment Holdings, Inc. (AMC) – after falling back down from the short squeeze heights – has gained as much as 52% since last week’s low.
Where’s the money?
I completely understand why money is flowing into these stocks right now. As I discuss here often, supply and demand are driving factors in both the market and the economy.
And right now, there’s a ton of pent-up demand for these industries – perhaps no more so than for the airlines, where searches flights and bookings have surged in recent weeks.
While air travel demand is still only around half of what is was before the pandemic hit, many analysts are predicting big moves in the near future for “recovery stocks” like airlines and other industries.
But I’m here to raise a caution flag on all of the hype and optimism.
Look, I’m not saying a recovery isn’t coming and companies that have suffered the most over the last year aren’t primed for a big comeback. That’s almost a foregone conclusion.
But you need to be aware of a potential bubble that’s forming right now…
How do I get some?
The biggest travel and leisure names have been absolutely on fire lately.
In fact, many of them are trading near or even above pre-pandemic levels, which makes no sense to me.
As I already mentioned, airlines are still only doing a fraction of the business they were before COVID-19. Oil demand still has not fully recovered, with jet fuel demand not expected to recover until 2022 or even 2023.
I think many of the oil and travel and leisure names are overbought here, and I would advise waiting on a pullback from their current heights before jumping in.
But if you are looking to put your money to work in one of these spaces right now, I would buy Petróleo Brasileiro S.A. – Petrobras (PBR) – a Brazilian oil company that is attracting a huge amount of institutional interest right now.
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In the Spotlight: The Electric Vehicle Race Gets More Crowded
Foxconn, a partner of Apple Inc. (AAPL), has announced a partnership to develop an electric car with Fisker Inc. (FSR).
We’ve talked before about Apple’s desire to move into the EV space, and now the new offering from Fisker and Foxconn becomes the frontrunner to host Apple technology.
I’m keeping a sharp eye on this situation, and will update you as more developments arise.