Travel and tourism have been changed by the COVID-19 pandemic, but not canceled. The picture has changed to staycations and drivable getaways, and if investors can see the picture accurately, investing opportunities emerge.
As Americans choose to socially distance in nature to get away from it all this year, Brunswick (BC 1.97%) is set to meet increased demand for its boats and marine engines. Meanwhile, at the other end of the spectrum nature-wise, Walt Disney (DIS +0.44%) is reopening theme parks while growing its successful streaming service, Disney+. I think both companies present opportunities for share price increases.
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Brunswick finally focuses on the right industry at the right time
Brunswick, the recreational boat and marine engine maker, is one of the longest continuously publicly traded companies on the New York Stock Exchange. The company's long history lets us look at performance during downturns. It's not really very good.
Brunswick earned $2 to $3 per share in the run-up to the financial crisis of 2007-2008, but lost more than $5 a share in 2009. Post-crisis, the stock plunged to $2 from $40. Current expectations place sales down 12% this year. So why in the world would you want to invest?
Because that was a very different Brunswick, trying to spread its attention among too many disparate businesses. The company sold its bowling products business in 2015, its fitness business in 2017, and its billiards business in 2019. Prior to that, the company was in everything from defense to school furniture to medical supplies.
"Brunswick used to be a hodgepodge of leisure brands," said James Hounsell, associate portfolio manager at Centerstone Investors. "Now, it's a way better business."
Today Brunswick is fully focused on the marine business, making Boston Whaler fishing boats and Sea-Ray motorboats, as well as Mercury-brand boat engines. As Americans plan getaways closer to home and nature, as evidenced by huge demand in the recreational vehicle (RV) market, rising boat demand will likely follow. So far investors have lavished love on stocks of RV makers, up 20% this year, while boat maker share prices have languished.
One of the best ways to gauge demand is to talk to dealers. Guy Connor, owner of Midway Marine in Fulton, Miss. since 1995, noted a "huge upswing" in sales from Memorial Day to Father's Day weekend. In a July 4th interview by the Mississippi Clarion Ledger, Connor said, "We're up nearly 30% from last year at this same time. The pandemic had a lot to do with driving sales. The demand is outrunning the supply so people better get the boats while they can."
In 2019 Brunswick had sales of $4.1 billion, earning $371 million, or $4.33 per share. Cost cutting was in focus, as 20 North American manufacturing facilities were closed, leaving the company with nine in operation. The cost savings came to about $50 million, and is expected to be realized in 2020.
I think Brunswick stock is an investment opportunity ripe for the picking. Boat and marine engine demand is strong as pandemic vacations are taken close to nature. Brunswick is finally fully focused on one industry, and is cost-cutting while beefing up profitable businesses, like Mercury engines. This stock has lately been getting a bit of attention, but I think it still has quite a way to run.
The House of Mouse is strong despite health crisis challenges
The pandemic hit The Walt Disney Company hard, closing its theme parks and halting studio entertainment production, not to mention the loss of live sports on ESPN. The stock is down 17% year to date, but that may be about to change.
Setting the closures aside for the moment, Disney is showing significant strength in the Disney+ streaming service. The Disney+ app had more than three-quarters of a million new mobile downloads over the 4th of July weekend. In the U.S., downloads were up 74% over the average of the previous four weekends. The service released the blockbuster musical Hamilton on July 3, which undoubtedly drove new traffic.
What's especially noteworthy is that Disney had stopped providing free seven-day trials to new subscribers before the release. Even if new subscribers only wanted to see Hamilton, they still paid for at least one month -- more than enough time for them to try out the service and hopefully keep it. U.S. subscriptions are $69.99 per year, or $6.99 per month.
Disney+ has been introduced in Japan, and will launch in several new European and Latin American markets before the end of the year.
In the meantime, the theme parks have been on an expensive hiatus since coronavirus shut them down. They are reopening with stringent social distancing guidelines and safety protocols in place, although Hong Kong Disneyland announced Monday that it is closing its doors once again because of a surge in coronavirus cases in the region.
Disney's Orlando parks are just now reopened, but there's no way to tell if they will stay that way. On July 12, the day after the Orlando parks reopened, Florida shattered its highest single-day infection record with 15,300 new cases.
While Disney doesn't release attendance figures, a website dedicated to all things Disney had a staff member present at Disney World's reopening to report on crowd size. The conclusion was that there was a fairly normal-sized crowd in the morning, with the longest ride wait of 50 minutes at Pirates of the Caribbean, and a light crowd size in the afternoon. All things considered, it was a pretty good start, and showed that Disney's appeal hasn't dimmed during the COVID-19 pandemic.
I think Disney is not only showing comeback strength in the theme parks, but a strong growing presence in the competitive streaming entertainment sector. I see the current stock price, down 17% this year, as a buying opportunity if you have a long-term investing time horizon.
At some point the health crisis will end, and entertainment demand will spike, driving crowds to movie theaters and theme parks. In the meantime, Disney+ is well established in the U.S., and rapidly expanding internationally, providing a growing income stream.
There will surely be bumps in the road, but a year from now, I think we'll look back and wonder why Disney stock ever got so low.
