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3 Beaten-Down Stocks I'm Not Giving Up On

By Matthew Frankel, CFP® – Updated Jun 1, 2020 at 9:36AM

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Despite the market's rebound, these three stocks are still far from pre-pandemic levels.

It's been a roller coaster ride in the stock markets in 2020. After reaching new all-time highs in February, the market rapidly plunged by nearly 40% by late March as the COVID-19 pandemic brought the world economy to a near-standstill, and has since rebounded to where the S&P 500 is now back to within 15% of the highs.

However, there are some stocks in vulnerable industries such as hotels, banking, and tourism that have yet to make a recovery anywhere near that of the overall market. Three in particular that I own in my personal stock portfolio are Ryman Hospitality Properties (RHP 0.85%), Bank of America (BAC -1.50%), and Empire State Realty Trust (ESRT 1.39%), which are down by 60%, 31%, and 51% so far in 2020, respectively.

Having said that, all of these stocks could still be excellent long-term investments. Here's why I have not only held on but have added to my positions in all three since the pandemic began.

Woman walking through a hotel lobby.

Image source: Getty Images.

Best-in-class group hotels

At first glance, Ryman Hospitality Properties might look like the exact type of company that you don't want to be invested in. The company owns five massive hotels under the Gaylord brand name that are focused on group events like conferences, as well as a portfolio of entertainment assets such as the Grand Ole Opry and Ryman Auditorium in Nashville.

The hotel business is bad right now, but group-focused events are virtually nonexistent. Many hotels in the U.S. continued to operate (with very low occupancy) throughout the pandemic, but things got so bad in Ryman's business that the company decided to shut its hotels down -- and they remain closed.

Having said that, the positive side to the "group hotel" business is that it creates a stream of repeating business. In other words, many conventions and conferences are in the same venue year after year. With the premier non-casino group hotels in the United States, Ryman has millions of future room nights on the books. And, the company has successfully rebooked about 167,000 nights that cancelled by the coronavirus outbreak. With plenty of liquidity to make it through the tough times, Ryman could end up looking like a steal at the current share price. 

Bank stocks are pricing in a lot of pain

The financial sector has been one of the worst performing parts of the stock market during the pandemic, and many of the big U.S. banks have been very slow to recover.

The main reason bank stocks have performed so poorly is uncertainty. In a long recession with elevated unemployment, there's a real possibility that millions of Americans could run into trouble paying their bills. For the time being, enhanced unemployment benefits, stimulus checks, and business lending initiatives have kept money in pockets, but there are some big question marks about what happens after all that ends.

Bank of America in particular seems to be planning for heavy losses. In the first quarter, the bank added $3.6 billion to its loss reserves. However, I'm not convinced that they'll need it. As I mentioned, the government's stimulus efforts have done a great job of getting money to consumers and businesses, and banks have been great about working with consumers who might have trouble paying. The recent consumer confidence data, which handily beat expectations, indicates that Americans might be in better financial shape than experts thought.

Finally, Bank of America is a well-capitalized bank that has high asset quality and a management team that has done an excellent job of improving efficiency and profitability. And long-term, the business should do just fine, which is why I decided to add even more shares to my position.

Irreplaceable assets and a ton of capital to grow

Finally, one stock I've added to significantly is Empire State Realty Trust, a real estate investment trust (REIT) that owns the famous Empire State Building in New York City, as well as a portfolio of office properties in Manhattan and the surrounding areas.

To put it mildly, it's been a perfect storm of bad news for the company. Even before the pandemic, New York office real estate was struggling. Now, New York City has become the worst-hit part of the U.S. by the coronavirus outbreak. This has forced the company's retail tenants (NYC office buildings typically have street-level retail) to close, and worse yet, the lucrative Empire State Building observatory had to close indefinitely just after the company spent money to renovate it.

However, I'm sticking with Empire State Realty Trust because it's in the best position to come out of the crisis even stronger than it went in. For starters, most of the company's office tenants are paying rent. Empire State has about $1 billion in cash and has no exposure to troubled office assets like co-working. The company just hired a chief investment officer for the first time ever, and I'm very excited to see how management puts the cash hoard to work. In fact, of the three stocks here, Empire State Realty Trust is the one I've added the most to during the pandemic.

Invest for the long term

Keep in mind that the COVID-19 pandemic is far from over, and the market is likely to be rather volatile for the foreseeable future -- especially in highly affected industries like these. So, while I'm willing to put my own money into each of them and fully believe I'll be glad I did in a decade or two from now, things could certainly get worse before they get better. Invest accordingly.

Matthew Frankel, CFP owns shares of Bank of America, Empire State Realty Trust, and Ryman Hospitality Properties and has the following options: short June 2020 $7.5 puts on Empire State Realty Trust. The Motley Fool owns shares of and recommends Empire State Realty Trust and Ryman Hospitality Properties. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Bank of America Corporation Stock Quote
Bank of America Corporation
BAC
$30.20 (-1.50%) $0.46
Ryman Hospitality Properties, Inc. Stock Quote
Ryman Hospitality Properties, Inc.
RHP
$73.59 (0.85%) $0.62
Empire State Realty Trust, Inc. Stock Quote
Empire State Realty Trust, Inc.
ESRT
$6.56 (1.39%) $0.09

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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