Could BEACH stocks also have their moment basking in the sun, after all, people’s yearning for sun, sea, and sand isn’t going even in the AD pandemic.
Darren Winters explains that beach stocks refer to the acronym where B is booking, E is entertainment, A is airlines, C are cruises and H is hotels.
So, beach stocks are cyclical, consumer demand is discretionary and these stocks tend to do well when the economy is ticking over nicely.
Beach stocks represent the service industry which has been the worse impacted by the pandemic experiencing a great depression. But everything has a beginning and an end and so too will this pandemic. Generation Z and Y have the most robust immune system, they have been least impacted by the pandemic and we are likely to see pent-up demand for beaching services particularly by this age group flush with cryptocurrencies cash.
Cryptocurrencies loans, where cash loans are made with cryptocurrency as the collateral is a growing trend amongst young adults to finance their discretionary spending.
The boomer generation used to remortgage their homes to finance discretionary spending and it fascinating watching the evolution of advanced economies into this digital age where digital intangible assets have become collateral. Belief systems change as economies advance. In the bronze age metals were the best store of value, in the industrial age, it was fossil fuels and in the digital age, Darren Winters believes it will be owning a piece of the blockchain network.
Back to the theme of beach stocks while this service industry was decimated by the pandemic, Darren Winters also believes it is immune from this digital disruption
Think about it. How can you, or who would want to, digitalize the feeling of breathing in the invigorating sea air, or the warm feeling of the sun kissing your skin while hearing the sounds of waves caressing the shoreline, or maybe tantalizing your taste buds at a five-star Michelin restaurant?
Beach stocks cater to human senses experienced in the physical world, their revenue is not directly impacted by digital disruption
However, if the macro impact of digitalization and automation is lower worker participation rates going forward then that could also be a headwind for cyclical such as beach stocks.
It is the short-term bounce back in beach stocks that could provide investors, particularly traders with a shorter time frame with an investment opportunity
In the year that followed WHO officially declared a pandemic in March 2020 travel, leisure and entertainment lost $332 billion in market capitalization.
Since the S&P 500 market high on February 19, 2020, market capitalizations across BEACH industries—booking, entertainment, airlines, cruises, and hotel tumbled. The global airline industry alone has seen $157B wiped off valuations across 116 publicly traded airlines.
Investor confidence in cruise lines has also dropped. Between Carnival, Royal Caribbean, and Norwegian Cruise Line Holdings, over half of their market value has evaporated—equal to at least $42B in combined market capitalization.
Beach stocks fell off a cliff, according to a piece in Visual capitalist.
As the COVID-19 pandemic has spread to over 100 countries, many governments implemented sweeping travel restrictions. Expect the impact across BEACH industries was far-reaching, with some valuations declining to nearly a quarter of their previous total.
Consequences on various travel bands were severe. For example, Booking Holdings, the parent company to Booking.com, Priceline, Kayak, and OpenTable, witnessed share price declines of over 35% since the peak.
Moreover, across the entertainment industry, ticket sales for concerts, movies, and other events are falling precipitously due to cancellations or postponements.
The airline industry was also hit hard as shares of Delta Airlines fell by over 50% as the company downsized its capacity reduction by 40%, the largest in its history.
For the cruise line industry, catering to an older age group, the pandemic has almost been fatal
“COVID-19 on cruise ships poses a risk for the rapid spread of disease, causing outbreaks in a vulnerable population, and aggressive efforts are required to contain the spread” according to the CDC.
For example, Carnival, a Miami-based company, the stock price fell to around one-third of its February 19 value. Similarly, Royal Caribbean Cruises, which has seen its market cap dive by almost 70%. For cruise operations, the 2021 outlook remains bleak with cruises still banned across most of the world. The nature of cruising means that the industry could be one of the last to meaningfully start its recovery process. Feb 24, 2021.
So not all beach stocks are the same and those sectors which appeal to a younger age group least impacted by the pandemic are likely to emerge better as economies open up
Cruise operations could be the last to recover, assuming the worse of the pandemic is behind us.
Beach stocks could have the rugged pulled under them if the mutant strains of the virus trigger more lockdowns
Double mutant strains of the virus have been reported in South Africa, Brazil, India and Hong Kong have even detected an untraceable coronavirus variant with higher transmissibility.
The question should be not what if the virus mutates, that is already happening, but will it lead to further lockdowns
This could lead to civil unrest. Anti-lockdown politics is booming and lockdown rebellion is a vote winner particularly amongst the free-loving youth, the least impacted by the virus.
So Darren Winters concludes, not all Beach stocks are the same, the best ones to play would be those providing services to Generation Z and Y at least this group will be alive and kicking and consuming in a pandemic provided the economy doesn’t nosedive. What’s more, this age group is most likely to own cryptocurrencies and somehow be engaged in the digital economy so they will have disposable income.