Two worlds. The pre- and the post. That's what I keep hearing from all of the companies I am talking to, including ones that have just reported, and they are making clear that the worst is over and the second half, one where almost all people are vaccinated, will soon be upon us.
Are these people wild, cockeyed optimists? Hardly, they are the kind that are cautious, prudent, underpromisers from way back.
But let me tell you how they see it.
First, the execs who are part of the industrial complex have gravitated to the industries that had incredible growth until the pandemic, the first of which is aerospace. If you are in the aerospace business, what you have done in the last year is cut back, cut back and cut back some more. Your numbers, your cash flow, is bountiful because of the cutbacks, certainly not because of your revenues. The cutbacks for companies like GE (GE) and Raytheon (RTX) are in the hundreds of millions of dollars. They had no choice. If you are levered to travel, your numbers are horrendous.
Now, though, with the possibilities of what I am calling the vaccine glut, the dynamic is shifting rapidly. They have to meet the promise of bountiful demand. Some are using as much as 70% return of travelers by the end of the quarter. Others think that there could be a pent up demand that could produce a wave of travel that is off the charts, because people have gone nowhere and they are itching to travel. The airlines don't give advance bookings yet, but if you are in the cruise line business, you already know that 2022 is going to be a huge year, barring a new, unstoppable strain of the illness.
Given that demand, you can't really measure the importance of the quarters we are seeing now, and next. This is what makes these earnings so far something special. If they can put up these kinds of numbers with 70%-80% decline in travel, what the heck can they put up in the third and fourth quarters?
So, it all comes down to whether you think the pre-vaccine matters or the post-vaccine matters. You can't tell from the stocks. They are up, of course. How do you not praise the numbers that a 3M (MMM) is giving you with some double-digit business lines and everything going strong? OK, you say, they don't have aerospace. But you can't say the same thing about GE and Raytheon. They are two of the most important aerospace companies in the world.
I think if you base your decisions on today's reports, you would be satisfied already. You should be impressed by what these companies can do with nothing.
This all means that if you wait until we have the vaccine glut, it is already too late. Next dip, you buy.