Profit Pregame

How the Waning Pandemic Should Alter Your Trading Strategy

The Light at the End of the Tunnel is Sinking Certain Stocks

As we emerge from the worst health crisis in over a century, investors need to start shifting gears from the stocks the outperformed during the pandemic.

What’s happening?

As the COVID-19 virus spread across the globe, lockdowns and restrictions on gatherings helped to give a major boost to select stocks.

And with the influx of new investors hitting the market, a wave of cash flooded into companies that would benefit from the unique conditions that the market created.

Everything from pharmaceutical companies, e-commerce platforms, work-at-home stocks, and much more saw massive gains during the worst of the crisis.

But as we round the corner on the fight against COVID-19 – with more than 62% of Americans now having received at least one vaccine dose – it may be time to start thinking about securing profits on your pandemic plays and moving onto new trades.

One stock’s big drop this week is giving investors an early warning sign that some stocks that did well during the outbreak have reached their peak.

Don’t be left holding the bag.

Here are a few names that you should be moving out of soon, as well as what I’d be looking to buy going forward.

Where’s the money?

After gaining more than 66% in value from its February 2020 lows due to massive demand for its testing services, Abbott Laboratories (ABT) signaled that the party may be over for it and other stocks that thrived during the pandemic.

Yesterday morning, ABT cut its guidance on its full-year outlook. The revision reflects a significantly reduced demand for COVID-19 testing.

Abbott lowered its EPS estimate from $5.00 down to $4.30 after it became clear that demand for COVID-19 testing in the U.S. and other developed nations had declined well below its initial estimates.

While the news may be great for the broader, post-COVID economic recovery, it wasn’t what ABT investors wanted to hear. By mid-day yesterday, the stock was trading 8.5% lower, and 16.9% off its all-time high from February.

And this may be just the start for some of the best performing stocks of the last year.

Here are a few other names I’d consider selling now, as well as a few you might want to pick up…

How do I get some?

Going forward, we should continue to see a shift out of the pandemic names and into the re-opening/recovery trades.

As you can see, anyone who is linked to the COVID-19 testing space should sell off, as that business won’t be needed so much going forward.

But there are a couple of other names that I believe have hit their peak. With improving vaccination numbers, more and more people are able to leave their homes again. That means a return to the office, as well as leisure activities, for millions of people.

While some trends in work-from-home and entertainment that the pandemic ushered in are here to stay, we’re likely at the top for several stocks that were big movers over the last year.

This means I would not be looking to buy Abbott Laboratories (ABT), Roku, Inc. (ROKU), and Zoom Video Communications, Inc. (ZM). In fact, if you’re sitting on a profit, now might be the right time to bank it.

Looking forward, recovery and reopening stocks are going to see some of the biggest moves in the market. I’ll be looking at the airlines particularly for pullbacks, with my favorite stock in the industry being American Airlines Group Inc. (AAL).

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In the Spotlight: A New Twist in the Short Squeeze Fight

Yesterday, AMC Entertainment Holdings, Inc. (AMC) announced that it had raised $230.5 million in capital from a sale of 8.5 million shares to Mudrick Capital.

The funds will be used by AMC to make acquisitions, as well as invest in improvements to its existing theaters.

But by yesterday afternoon, reports were surfacing of a very unexpected move.

During mid-day trading yesterday, investors noticed a large number of shares selling off that dropped AMC shares from around $33 to below $30.

Shortly thereafter, Mudrick Capital began advising its client that the stock was wildly overvalued.

It turns out that Mudrick had reportedly liquidated its entire position in AMC for a roughly 20% profit less than one day after acquiring the shares.

While AMC still gets the additional funding it was looking for, it’s being speculated that Mudrick – which may have ties to Citadel Advisors LLC, a big AMC short seller – dumped its newly acquired shares in what appears to be an effort to halt the short squeeze.

While the full impact may not be felt just yet, it’s becoming clear that – with so much on the line – the hedge funds may be willing to fight dirty to prevent losing millions more.

As always, I will be sure to keep you posted on the latest developments. Stay tuned.

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