Shares of Home Depot (HD 0.15%), Camping World Holdings (CWH -0.78%), and Bed Bath & Beyond (BBBY -0.40%) popped 13%, 21%, and 12% higher, respectively, early Tuesday afternoon as the broader markets are putting together a strong rebound from Monday's sell-off.
The S&P 500, Dow, and Nasdaq all jumped in the high single digits throughout Tuesday morning as investors are likely responding to House Speaker Nancy Pelosi being optimistic that both sides were closing in on an agreement for a COVID-19 coronavirus rescue bill. The bill could be a huge boost to struggling industries, such as retail.
The graph above is telling about consumer sentiment: At a time with so much uncertainty, Bed Bath & Beyond and Camping World appear less necessary than Home Depot. As consumers continue to stock up on necessities while enduring the negative economic impact from the COVID-19 coronavirus, it's difficult to imagine many people buying recreational vehicles or associated products. It's also difficult to imagine much of a camping season when some campgrounds are closing and people aren't as willing to travel.
For Bed Bath & Beyond, investors are likely shying away because the company's products are more discretionary than necessary, and sales will take a hit in the near term. The company already had a pile of challenges in reigniting its top line and embarking on a massive turnaround under newly appointed CEO Mark Tritton. Bed Bath & Beyond was in the process of layoffs, store closures, and a major shake-up in management, and the COVID-19 coronavirus will make a turnaround even more difficult.
Home Depot serves as an amazing example of exactly how investors should proceed in uncertain times. They would be wise to avoid investing blindly in stocks hoping for broader rebound; some stocks never recover, even with a broader bounce back in the markets. Investors should find companies like Home Depot, which has boasted strong value returned to shareholders through buybacks or dividends, superior cash flow, rising sales, fast inventory turn, and a strong balance sheet.
Retail has essentially been flipped on its head, with many major chains closing stores to slow the spread of COVID-19, and a wave of uncertainty about how large the economic impact will become. Investors have to remember that even during typical downturns, companies rarely deal with developments that cause zero revenue for the foreseeable future, and many retailers are facing that reality with little warning.
History has shown us that markets will bounce back from developments like this, but the graph above remains a great example of why dusting off a company's financials amid a crisis like this is so important: Find solid stocks and companies like Home Depot, and keep a long-term outlook during volatile and uncertain times. Yes, some retailers are surging today on the hope of a stimulus bill to aid struggling industries, but it's just as important to find top stocks that don't need such assistance.