As Economies Reopen, Contrarian Bets Take Shape

By: Spencer Israel

All 50 states have now begun to reopen their economies to some degree, with the vast majority having what is described as either “minor” or “moderate” restrictions on public gatherings. This is a far cry from a month ago, when nearly every state was under lockdown. 

A number of trends that would have been considered massively contrarian in March and April have gained steam in recent weeks, as the market has used them as proxies to bet an economic recovery (or at the very least, a gradual return to “normal”). 

Betting On Airlines
Warren Buffett may have sold all his airline stocks, but that hasn’t slowed speculation in one of the most beaten down areas of the market. Next to retail and cruise ships, the airlines have been among the most punished stocks in 2020—but that has begun to change. 

Over the last week, the five major airline airline stocks all dramatically outperformed the S&P 500, with United Airlines (up 27%), Southwest Airlines (up 20%), and Delta Airlines (up 18%) leading the way. And just as individual airline stocks have begun to soar, so has a broad-based bet on the industry. 

As Bloomberg’s Eric Balchunas noted, as of May 22 the U.S. Global JETS ETF (JETS) had seen a net inflow for 57 straight days, during which time it has taken in roughly $748 million—an almost unheard of streak for such a niche ETF. JETS was the 14th-best performing (non-leveraged) ETF last week. 

Cannabis Has A Huge Rally
The weak got weaker during the March sell-off. So it’s no surprise that many cannabis stocks seen as having vulnerable balance sheets were among the hardest hit even with dispensaries operating as essential businesses. 

Fast forward to the week of May 22, and six of the top eight best-performing (non-leveraged) ETFs were cannabis ETFs. The catalyst for the monster rally in cannabis last week appears to have stemmed from a report in the New York Post that cited a study which said certain strands of cannabis could help treat COVID-19. This information was not new, nor was the study peer reviewed. 

But that didn’t seem to matter. The positive headline coupled with a buy-the-dip mentality led to a huge week for the industry. 

The market’s largest cannabis stocks, Canopy Growth and Cronos, rose 22% and 21% respectively, though both were outshined by Aurora Cannabis, which rose 42% on the back of an acquisition that will enable the company to enter the U.S. market. 

Tourism, Gaming, And Travel Are Back On The Menu
Maybe it’s the economic thawing, or maybe it’s the warmer weather, but a number of stocks in these groups got a nice boost last week. 

This includes casino and gambling plays like Penn National Gaming, Eldorado Resorts, Boyd Gaming, and Churchill Downs, REITs like Park Hotels & Resorts and Gaming and Leisure Properties, and travel/lodging stocks like Norwegian Cruise Lines, Wyndham Destinations, and TripAdvisor. All of these names rallied between 20-57% last week. Meanwhile the ETFMG Travel Tech ETF (AWAY), whose top holdings include Uber, Booking Holdings, and Webjet, rose 15%. 

The sudden emergence of these trends can be at least somewhat attributed to the strength in the rest of the market. With the S&P 500 back to early-March levels and a number of high-flying tech stocks hitting new all-time highs, there are only so many places left to buy the dip. The themes above were among the most beaten down in March, so it’s only natural that they would be among the last to rally. 

The only question now is whether the economic realities of these industries post-COVID-19 will justify investor enthusiasm. 

The author owns United Airlines, Delta Airlines, Southwest Airlines, Norwegian Cruise Line and Booking Holdings in his retirement accounts.

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