To nest or not to nest, is that the question? We are now at one of the most difficult post-pandemic times because we have run so much from the bottom and we are dealing with such a fluid vaccine-the re-opening, when and how will it impact stocks.
Why is this dichotomy so important? Because we are starting to see the nesting stocks falter. We are all itching to get out and we know when we get out we will travel and have a blast and maybe have an even Roaring Twenties style boom. That's what people want to invest in. To me, that might be a fool's errand.
Here's why. Companies are not static beasts. They are not sitting there saying we are going to make hay when the sun shines and then we are going to be big losers. Companies have CEOs who take actions and make it so that they come out better when the crisis is finished and we can't judge the entities for how we see them now.
I always think examples are the best way to portray this. The two most obvious ways to look at nesting are traveling and leisure stocks. Let's go with the most visible ones I know. We have been recommending Disney (DIS) and Boeing (BA) . Why? First because they are trusted brand names, and yes, Boeing is trusted.
Second going to Disneyworld is an All-American vacation. It's a destination and a rite, one that I have done over a dozen times. I have always flown there, most likely on a Boeing.
Both companies have been hit very hard by the pandemic. Disney's been pilloried by the largest state. They make movies. People aren't going to movies. They have cruises. People aren't going cruising. They have a sports channel when sports were silenced. They have theme parks that don't make money without crowds and yet crowds are an anathema to health.
So did they sit there and take a beating? No, the opposite, they changed their model to where if you stayed at home you got Disney+, one of the most tremendous bargains of the ages. It became a nesting stock. But it never forgot what it could be. In fact, it took out costs so that when nesting ended the margins could explode higher.
That's why it is up huge. We know this is going to occur. To nest or not to nest? It's barely the question.
Then there's Boeing. This morning Boeing announced a deal to raise $9 billion in cheaper debt. Without it nesting could cut off the oxygen. But it would never have meant the end of Boeing because the long-term travel trend never stopped. Now let's say you believe in the Roaring Twenties scenario. After people have exhausted carousing, they are traveling. They will be going to all sorts of places because they have so much discretionary income from not having done anything.
That means they are going on planes. The airlines are not in a position to handle all the traffic that they might rack up. So they will need more planes. Because Boeing has a surfeit of planes of all kinds, it will be able to make a fortune on all it sells, perhaps more than anyone ever thought possible. Boeing had a hideous quarter last week. One of the worst I have ever seen versus expectations. The stock barely got hit.
That's a sign that you have an end-of-nesting stock that did good things when we were nesting.
These false dichotomies are all over the place.
The two front and center ones are tonight's fodder: Amazon (AMZN) and Alphabet (GOOGL) . We think of Amazon as a nesting stock, people stopped shopping outside so they defaulted to inside which is Amazon. If 50% of the country gets vaccinated by May are 50% of the people going to go outside to shop? Or did they discover that the time spent at the store is wasted time? I am thinking that Amazon used the nesting period to gain strength, become better and be able to make more money than ever.
How about Alphabet? Didn't it become even more indispensable to the stay at home student? Didn't it do more to become more profitable when everyone was nesting. Didn't it build up Google Cloud? Yes, yes, yes? Oddly, it didn't matter though. What does matter is that the company is, in the end, an advertising driven model, and the advertising that has been most lacking? None other than travel, which is the most lucrative form of its business. The amount of money that will flow to the bottom line in the second half is so extraordinary that you can see why the stock is already at new high levels.
I mention these two because tomorrow there will be people who will say the nesting trade is over and you need to sell these stocks, You might even see them be down on this, in the way United Parcel's (UPS) stock fell after a great opening - let's hear more about that tonight when we speak to the CEO of UPS, Carol Tome.
Now I know this whole question seems to be on my mind and it may not be on yours. You may be focused on the ruckus of Reddit and Robinhood. I urged you when I came back from surgery that you must consider that death match a sideshow and to look for opportunities that are bigger themes, that aren't hostage to the notion of hedge funds versus regular guys. It distracts you entirely from the bigger questions that are making people bigger money, both the regulars and the pros. Do I want to know how AMC (AMC) is going to do? Aren't movies the most popular opening trade? I would have thought so at one time but we don't know. Perhaps the opening trade flails on the vaccine undelivered. Perhaps we ended up liking playing video games downloaded from the net at our homes? Perhaps we want to own companies with better balance sheets.
I know I do.
Throughout this pandemic I have been on the prowl for companies that have reinvented themselves and not just taken advantage of a wave that one day would go out leaving the company with nothing special - like so many of the mall retailers. I have been worried even that some companies that have made big money on the pandemic, companies like Pfizer (PFE) , may not have a second act.
But I never worry about a company like, say Apple (AAPL) , which you can own not trade, because it was and is about the best customer product. That's neither nest nor not to nest. Maybe that's what makes it the best.
However, I am responsive to what you want because you want to be an informed investor. These stocks I have mentioned, therefore are the best I have.