The stock market has fully recovered its losses from the pandemic, with the S&P 500 up 8% year to date. But despite the wider market gains, several companies in the tourism and food-service industries continue to trade at a discount because of the disproportionate impact they faced during the crisis. Here are two stocks that are still trading at substantial discounts to their pre-coronavirus highs.
The first stock is Starbucks (SBUX 1.00%), the coffee giant with a compelling international expansion story. The second is MGM Resorts International (MGM -0.33%), a casino operator making a convincing pivot to sports betting. Both stocks are among the top 100 held by investors on the millennial-focused trading app, Robinhood, and they reflect retail investors' healthy appetite for risk and potentially market-beating returns in the wake of the pandemic.
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Starbucks: Room for continued growth in China
Like many food-service companies, Starbucks has been slow to recover from the coronavirus pandemic. With a share price of $84.47 at Monday's close, the stock is about 13% below its 52-week high. But the coffee chain looks poised to bounce back because of its mobile initiatives and the opportunity for continued expansion, especially in international markets.
Starbucks' business is normalizing in the United States. Management reports that 96% of U.S stores were open as of its fiscal third quarter, which ended June 28, up from 44% at the start of the period. Meanwhile, the chain has used the crisis as an opportunity to accelerate its transition toward online ordering, pickup, and delivery. Mobile ordering represented 22% of total transactions in Q3, up 6 percentage points from the prior-year period.
In China, things are even closer to normal, with 99% of locations having reopened with 70% at regular operating hours and full seating.
The company continued its aggressive expansion in China by adding 100 stores in the third quarter for a total of over 4,400 locations. Starbucks may also benefit from the implosion of Luckin Coffee, a key competitor in China that will see its expansion ambitions stalled due to difficulty raising capital after its accounting fraud and subsequent delisting from the Nasdaq.
MGM Resorts: Probably won't stay cheap for long
MGM Resorts is a casino operator with a large footprint in Las Vegas and Macao. At Monday's closing price of $22.50, the stock trades at a 35% discount to its recent highs, from before the coronavirus pandemic crippled visitor traffic to its casinos. But despite its challenges, MGM looks poised to recover because of its international expansion and sports betting app, BetMGM.
MGM is planning a massive expansion into Japan through the development of an integrated resort in Osaka. This is a very long-term growth driver because Osaka authorities aim to have the venue open by 2027 or 2028.
But while the Osaka resort is still a long way from generating revenue, MGM's push into sports betting is already leading to sustainable returns. It's aiming to become a leader in the sports marketplace through its recognizable brand and partnerships. The company teamed up with British sports betting company GVC Holdings to launch BetMGM in the third quarter of fiscal 2019. The platform is on track to generate net revenue of $130 million in 2020, according to MGM's second-quarter earnings call transcript.
