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A Year After Covid Crash, Pandemic Losers Are the New Winners

Mall owners Simon Property and Kimco Realty Corp. have both gained more than 70 percent since the end of October.

(Bloomberg) -- A year after Covid-19 reordered world markets, sparking a brutal selloff for many stocks and creating new lockdown darlings, the prospect of vaccine-led reflation is turning the tide for the pandemic’s main laggards.

Rebounds in shares that were the hardest hit during the early days of the crisis have helped equity benchmarks around the world climb to near record highs. The likes of European tour operator TUI AG and U.S. mall owner Simon Property Group Inc. are among those that have rallied most strongly.

“There’s broad opportunity in those laggards,” said Hani Redha, a portfolio manager at PineBridge Investments, referring to airline stocks, cruise operators and hotels. “We are on the more bullish side that there’ll be a lot more normality coming back sooner than you may think.”

The increasing optimism among investors about an end to months of lockdowns and travel restrictions can also be seen in the recent underperformance of those stocks that were among the pandemic’s biggest winners. The likes of Zoom Video Communications Inc. and Germany’s Delivery Hero SE, which soared as the coronavirus took hold and changed the way we all live, are now some way off their peak valuations.

Where stocks most-exposed to the pandemic go from here depends of course on the virus, and the speed and effectiveness of the vaccine rollout. Below is a look at the possibilities, breaking it down by sector.

Stay-Home Stocks

The hottest trade of 2020 has lost some of its shine in recent months as investors chase cheaper valuations and higher growth expectations in other industries. Shares of companies like Zoom, Netflix Inc. and Inc. have lagged behind the broader market since the end of October.

Wall Street estimates haven’t budged for Zoom in months and the stock is trading around 27% below its 2020 peak. Amazon has flat-lined since September, with news of surging sales and profit eliciting shrugs from analysts.

There are similarities in Europe. Delivery Hero is about 16% below a January peak, while France’s Ubisoft Entertainment SA and U.K. online grocer Ocado Group Plc have fallen back after results failed to provide fresh catalysts.

But some of the region’s pandemic winners have continued to prosper, suggesting a more selective approach among investors. Payments firm Adyen NV, which surged over 160% in 2020, and Swedish online casino operator Evolution Gaming Group AB, which almost tripled last year, have continued to hit records on an almost daily basis. German meal-kit company HelloFresh SE is another that has extended gains in 2021.

“We’ll never go back to where we were pre-pandemic,” said Alasdair McKinnon, lead manager of the Scottish Investment Trust, citing those that have flourished as a result of home-working, online shopping and demand for home-entertainment gear. “But I just think we’ve seen the absolute best conditions you could possibly get for these businesses.”


Investors are betting that higher demand from online shoppers will outlive the pandemic, with digital-only retailers like Etsy Inc. and EBay Inc. in the U.S. and Asos Plc in the U.K. continuing to outperform in 2021.

But, according to Bloomberg Intelligence analyst Poonam Goyal, apparel retailers like Urban Outfitters Inc. and department stores such as Kohl’s Corp. have the chance to regain some market share lost to e-commerce as store-based traffic starts to recover later in the year. Both stocks have gained more than 18% this year, outperforming the S&P 500 Index, while Europe’s Hennes & Mauritz AB has risen 9.9% to trade at a near 12-month high.

Reduced competition for physical outlets after some stores closed for good during the pandemic is likely to benefit brands such as Associated British Foods Plc’s Primark, said Alan Custis, head of U.K. equities at Lazard Asset Management LLC. He expects consumers will want to hit the shops after lockdown restrictions ease.

“People still do enjoy the actual shopping experience, notwithstanding the fact that we know online’s really grown through this pandemic,” Custis said.

Travel & Leisure

The travel and leisure sector has staged a comeback, but many groups like airlines and movie-theater chains remain well below pre-pandemic levels.

One of the best performers has been Live Nation Entertainment, which has gained more than 80% since the end of October and is trading at a record. Investors are betting that pent-up demand will lead to a surge in revenue and profit, though some analysts have warned that valuations could be too frothy.

In Europe, optimism over a resumption of travel and tourism has helped shares of InterContinental Hotels Group Plc and budget airline Ryanair Holdings Plc recoup all of their pandemic losses. Morgan Stanley analysts this week raised price targets for InterContinental among other European leisure stocks, noting pent-up demand for travel.

Still, Rory Alexander, a U.K. equities manager at M&G Investments, sees so-called staycations remaining in fashion for the next two years, with consumers shifting to domestic leisure activities such as bowling. Meanwhile, shares of U.K. pub operators have already “rallied hard,” and Alexander sees a high level of optimism already embedded in some travel and leisure stocks.

Real Estate

In the U.S., data center owners like Equinix Inc. and Digital Realty Trust Inc. were the stocks to own last year as demand for computing power soared. That script has flipped in recent months, with investors rotating into beaten down REITs exposed to retail. Mall owners Simon Property and Kimco Realty Corp. have both gained more than 70% since the end of October.

It’s still challenging in Europe. Analysts said recent results from Unibail-Rodamco-Westfield, the region’s biggest mall landlord, contained no positives. Peer Klepierre SA said this week that current lockdown measures affecting 60% of its stores will continue to hit its cash flow this year, though indicated that restrictions on shoppers could ease after March. Both stocks have extended their 2020 declines this year.

Office landlords have suffered too as their properties stand empty, though rent collection has held up better than their retail-focused peers and there remains an expectation among analysts that stocks like Alstria Office REIT and Covivio SA will rebound when economies recover.

That does not remove the existential threat posed by a higher proportion of people working from home, however. It’s likely that developers with newer buildings that can be adapted to meet changing employer and employee demands will thrive.

--With assistance from Sam Unsted and Lisa Pham.

© 2021 Bloomberg L.P.

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