Who is ready for a vacation?
The answer is, “pretty much everyone.”
According to every travel survey out there, the amount of pent-up travel demand is at an all time high.
Granted, most of these surveys come from companies that will benefit from increased travel. But it doesn’t take a rocket scientist to tell you that people are ready to get out of their homes, go on vacations, go to restaurants, and just interact, face-to-face, with human beings again.
On the flip side of that, the pandemic has given way to an entire new phenomenon and help create an industry of products that has brought peoples’ outside lives indoors.
Stay-at-home life has evolved so rapidly that people can now experience everything from work to gym class to vacations, without leaving the comfort of their homes.
So, now the question remains, which stocks are going to be the top performers in 2021: The Stay-at-Home Stocks or The Get-the-Hell-out-of-the-House Stocks?
To answer this question, let’s examine a couple of the most popular stocks from each category.
Even with the tremendous amount of pent-up travel demand and the urge to return to normal, we will never fully go back to the way things were.
Companies that have adapted efficient work-from-home capabilities have realized that they don’t need a huge office space. Saving this overhead expense is a massive gain to their bottom lines.
In addition, it seems like every day, new home gym equipment is hitting the market.
With companies like Peloton and Nordic Track reinventing the gym class, people are free to work out when they want and how they want, without the rigors racing from work to a potentially already-full, spin class at their local gym.
Stay-at-home stocks saw a huge surge in 2020. Will they continue to see the same momentum, or will they come back down to earth as things return to normal in 2021?
The answer is “yes and no” and it truly depends on the product and stock.
A Stay-at-home stock positioned to continue its growth is Peloton (PTON).
Peloton IPO’d in late 2019, a full year before he pandemic hit. Its initial share price of $29 then went on a meteoric rise over the next year and a half and is currently trading at $145.
The growth of over 400% was fueled by the pandemic as Peloton saw its subscribers grow at an astounding 134% Year/Year and expects to have 2.28 million or more subscriptions by the end of the fiscal year.
They also have one of the highest retention rates of any digital subscription program with a devoted fan base who are deeply engaged in their social communities.
Peloton continues to produce an outstanding user experience and a has created a variety of exercise options beyond cycling. Their less-expensive versions of bikes and treadmills allow a deeper penetration into the market.
Peloton’s recent earnings blew away expectations with full-year revenue expected top $4 billion, ahead of the expected $3.9 billion.
The only reason Peloton’s stock sunk after earnings is because their supply chain is having a hard time keeping up with demand. Deliveries are being delayed but Peloton says it is investing more than $100 million in air and ocean freight to help expedite deliveries.
Once Peloton solves the supply side to match their demand, their revenues will see a continue to surge, along with their stock price.
Conversely, another Stay-at-home-stock that saw growth in 2020 but is poised for a correction is Pool Corporation (POOL). Pool Corporation is a distributor of swimming pool supplies and equipment and related leisure equipment.
POOL opened 2020 trading at a share price of around $215. By the end of 2020, it had grown to a price of $390. With public pools closed and summer vacations canceled, the demand for residential, back-yard pools shot through the roof. The current waiting list to get a pool installed is now over a year.
However, POOL now has several headwinds moving into 2021 that could potentially hurt its stock price.
The first is the combination of the rapid vaccination roll out with pent-up travel demand is going to send people back to vacations and away from their homes. This means that those who were considering a pool or on the waitlist will heavily reconsider this major expense now that they can get away on summer vacation.
The second factor is that the cost of a pool installation has gone up with demand. The ROI of installing a pool is still up for debate. If a pool is poorly installed and needs maintenance, it could dramatically decrease the resale value of a home. And, if the initial price has gone up, that ROI becomes even harder to justify.
While the Stay-at-Home stocks will be a mixed bag, the Get-the-hell-out-of-the-house stocks are poised to see growth across the board.
As you can see, the hospitality and retail sector of REITs took a massive hit last year:
For you value investors out there, many of the stocks in the lodging and resort sector are at rock bottom prices and ready for blast-off.
For stocks that were seeing pre-pandemic growth with high demand and healthy balance sheets, 2021 could be a breakout year for them.
One such stock is MGM Growth Properties (MGP). MGM Growth Properties is one of the leading publicly traded Real Estate Investment Trusts on the market, engaged in the acquisition, ownership and leasing of large-scale casinos and resorts.
With properties like MGM Grand, Mandalay Bay, and The Borgota, this is one stock that is poised to benefit from the release of the travel demand once everyone gets the go-ahead.
Since their IPO in 2016, MGP has had a 32% dividend growth rate and has completed $6.7 billion in transactions.
While the entire hospitality sector saw a decrease of 48% last year, MGP actually gained 8%.
With an expected massive influx of travelers to Las Vegas, MGP is one of those stocks that could see revenues through the roof throughout 2021.
Other stocks like OSW (One Spa World), which operates health and wellness centers at resorts and cruise ships are also poised for a resurgence in 2021. Expectations for OSW is that 2021 revenue will increase 50%.
The expectations are not unfounded as Royal Caribbean saw 150,000 people sign up for cruises in 2021.
In Summary:
2021 could be a great year for the stock market. And for stay-at-home vs. get-out-of-the-house stocks, it could be opposite years, performance-wise.
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