The stock market is now more than 30% off of its February all-time high, and some areas of the market have been hit even harder. Given the nature of the COVID-19 outbreak, it's not surprising that many companies in the hospitality industry have declined by much more than the broad market averages.
Having said that, even though they've been beaten down in the coronavirus downturn, here's why Simon Property Group (SPG 0.89%) and Wynn Resorts (WYNN 2.90%) could deliver incredible returns for investors in the years after the dust settles and American life starts getting back to normal.
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Mixed-use destinations that produce results for retailers
It's understandable why investors might be hesitant to buy shares of a company like Simon Property Group right now. After all, it's a mall operator that's not currently operating malls. While the company said it would reopen its properties on March 29, there's a very good chance that the closure could last significantly longer.
Having said that, there are some good reasons that Simon could be worth a look after having lost about 65% of its value in the past month alone. For one thing, Simon has the financial flexibility to make it through the tough times. It recently expanded its credit facility by $2 billion to a total of $6 billion. Combined with its existing credit, the company now has $9.5 billion in total credit available, and it's not likely to need anywhere near that much to stay afloat, even if the shutdown lasts for months.
Second, once the coronavirus outbreak ends (which is a when, not an if), consumers aren't simply going to shop from home. Simon's mixed-use centers with popular entertainment and dining choices are going to bring in foot traffic, and the company has proved its ability to compete with e-commerce. In fact, while many malls have seen sales rapidly decline in recent years, Simon's tenants generated more sales on a per-square-foot basis in 2019 than they did the year before. While 2020 isn't likely to keep that trend alive, I wouldn't be surprised to see Simon get back on track quicker than most people seem to think.
Casino gambling isn't going away -- the opposite is true
The casino business is certainly getting hit hard by the coronavirus pandemic. Las Vegas casinos are closed for at least a month, and the same is true in most other U.S. gaming markets.
It may seem like there's no good reason to invest in Wynn Resorts right now, but I disagree. For one thing, many Americans don't realize that its Las Vegas properties aren't the company's largest revenue source. In the fourth quarter of 2019, just 22% of the company's revenue came from Vegas -- more than two-thirds came from its two Macau properties. And while these properties closed in response to the China outbreak, they have since reopened. It'll take a little while for revenue to get back to its level, but Wynn's business isn't exactly at a full stop.
What's more, the company ended 2019 with $2.36 billion in cash on its balance sheet, which should help it survive the tough times.
In a nutshell, people aren't going to stop gambling at casinos. The gaming industry will certainly experience some short-term pain, and it could take quite some time to get back to normal. However, things will get back to normal at some point, and remember that there's a clear trend toward legalized gambling throughout the United States.
Now that shares have lost nearly two-thirds of their value since peaking in mid-January, it could be an excellent way to invest in the trend toward legal gambling while the industry is going through a very tough time.
Expect a roller-coaster ride
While these stocks could make excellent long-term investments, it's important to emphasize that investors are likely in for quite a roller-coaster ride in the weeks and months to come, and it's entirely possible both of these stocks will fall even further as the coronavirus outbreak continues. Approach these with a long-term mentality, and be prepared for significant volatility as the situation continues to play out.
