Most stocks roared back last month, but some sectors remain out of favor. It's hard to find a lot of enthusiasm for airlines, cruise lines, and movie theater companies these days. However, there always seem to be diamonds in the rough.
JetBlue Airways (NASDAQ:JBLU), Royal Caribbean (NYSE:RCL), and IMAX (NYSE:IMAX) would all have to more than double to get back to where they were just a few months ago. They're toiling away in maligned industries, but they have some advantages that investors are forgetting. Let's go over why these are three stocks that could return from the dead sooner rather than later.
These are challenging times for airlines. Consumers and corporate travelers are staying home, and that finds all carriers scaling back their flight schedules and angling for government bailouts. Over the weekend, we learned that Warren Buffett sold off all of his once-sizable stakes in the four leading airlines.
JetBlue wasn't on Buffett's list, but it isn't immune to pain. It had to park 100 of its planes last month as it reduced its scheduled flights by 70%. It's losing a lot of money, but it's not necessarily faring worse than its larger rivals.
JetBlue operates as a low-cost carrier that has become a cult fave for its free inflight entertainment and wide range of snacks. It's a lot younger than the legacy carriers, and that's a good thing given the heavily leveraged balance sheets, aging fleets, and mounting liabilities of some of the larger players.
There will be an inevitable shakeout, and we'll eventually need to fly again. There will be more bargaining power to be had for the remaining players, and JetBlue will be there to satisfy growing demand with the thinning supply of options.
If you think airlines have it rough these days try cruise ship operators on for size. At least some planes are flying with passengers, and there aren't 100,000 crew members stuck on planes going in circles above the control tower because they're not allowed to land.
It will take some time for cruise lines to bounce back, but you have to like Royal Caribbean's chances of leading the way out. It has scored net margins between 17% and 19% in each of the past three years, well above its two rivals, which have consistently landed in the low to mid-teens. Royal Caribbean is also finally making headway to repatriate its ship-stranded crew members, and its fleet was spared coverage of some of the industry's worst sailings.
It's OK to be down on the cruising industry's near-term prospects, but if you had to pick the player with the best chance at staying afloat, it would probably be Royal Caribbean.
It's so easy to hate on movie theaters these days. This was a fading industry long before social distancing shuttered your local multiplex, to begin with. IMAX offers premium-priced supersized screenings with its proprietary projectors and sound systems.
Movie theaters are now closed, and that means IMAX is also locked out of its revenue-generating potential. However, it's not fair to paint IMAX with the same broad bearish strokes as chains themselves. For starters, this isn't the same low-margin, high-risk model as the actual exhibitors. IMAX either collects a piece of the action on premium-priced IMAX screenings or it enters into box office revenue-sharing agreements with theater chains. It has less at risk here, and it's why gross margins have consistently clocked in north of 50%.
It may take some time before folks get excited about going out to the movies again, but when they do, it won't be to see the rom-com or indie critical fave that they can easily stream at home. Crowds will return for the big-budget superhero and action flicks that are a staple for IMAX conversion.
It also bears pointing out -- since nearly a third of its revenue is hailing from Greater China -- that the world's most populous country is getting closer to reopening its movie theaters than we are here in the U.S. Unlike the leveraged movie theater chains, IMAX actually has more cash on its balance sheet than total debt -- as well as 1,616 screens at the end of March and an order backlog of 533 more future installations. IMAX will screen disaster flicks, but it's no disaster.