Stocks tumbled this week as fears of another wave of coronavirus infections swept the market.
Over the weekend, the number of daily cases rose to record highs in the U.S. and have stayed elevated throughout the week. Much of the Midwest and Mountain West have been at record levels for weeks, and in some areas, infections are straining hospital capacity. In Europe, daily new cases continue to push into record levels, and some countries have begun imposing lockdown measures, including France, which now has a 9 p.m. curfew across most of the country.
Those data points, along with previous warnings from epidemiologists about the risk of widespread outbreaks in the fall and winter, could lead to incremental restrictions in much of the country and even a full-on lockdown, squeezing the economic recovery. For investors, such an event is likely to push stocks lower since they're already trading near all-time highs.
But there are a few companies that look like winners even if the U.S is forced into another lockdown. Keep reading to see why these three -- Polaris Industries (NYSE:PII), Pinterest (NYSE:PINS), and The Michaels Companies (NASDAQ:MIK) -- all could still benefit, despite a coronavirus-related lockdown.
1. Polaris Industries: A winter recreation boom
Recreational vehicle sales and stocks spiked over the summer as the pandemic sparked a surge in demand when Americans sought socially-distant alternatives to typical vacations.
A spike in COVID-19 cases during the winter, including lockdowns, could do the same for winter recreation equipment, including snowmobiles (and off-road vehicles (ORVs) in warmer parts of the country). That's good news for Polaris.
Polaris is the No. 2 maker of snowmobiles in North America, behind Ski-Doo parent Bombardier, and is the market share leader in ORVs in North America. It also owns the Indian motorcycle brand and makes boats, but ORVs and snowmobiles are its primary source of revenue.
The stock is down 10% year to date since the company's second-quarter performance was hammered by dealer shutdowns. Revenue in the quarter was down 15%, but there are signs that the company sees a strong second half of the year, with management noting "unprecedented retail demand for our Off-Road Vehicles and Motorcycles through May, June and now July."
In the third quarter, sales rebounded to a 10% increase (up 15% in North America), while earnings per share jumped 70% to $2.85, easily beating the analyst estimate of $2.19. Management also raised its full-year EPS guidance to a range of $7.15 to $7.30, giving the stock a price-to-earnings ratio under 13, which looks like a bargain considering its pandemic-fueled demand.
Despite the broader economic woes, retail sales have been strong in general, and Americans are likely to spend even on discretionary items like ORVs and snowmobiles if a winter lockdown eliminates other options for spare time and money.
2. Pinterest: A time for escapism
It's no secret that screen time and the escapism that comes with it have grown during the pandemic, and while a number of stocks have benefited from this trend, Pinterest is head and shoulders above the rest.
Unlike other social media outlets, Pinterest focuses on positivity. It bans political advertising, helping it avoid the tumult over the presidential election, and management says that people come to the site for self-improvement, not necessarily to connect with others. That has been an advantage at a time when advertisers have boycotted Facebook and when suspicion has mounted over social media's influence on politics. It also attracts people with extra time during the pandemic.
The company put out a marketing guide, explaining that escapism and optimism were one phase of pandemic searches: When users get fatigued with the challenges of social distancing, they search for things like "future wedding" and "future apartment." Pinterest advises: "Your audience is starting to get restless, bored or lonely. People are escaping the present by turning to the future."
The combination of winter with a spike in coronavirus cases and some lockdowns will likely spark another round of escapism from those in the grips of the pandemic. Pinterest's user base surged in the second quarter, with monthly active users rising 39% to 416 million, and the winter could be especially fruitful for the platform. If that base continues to grow, advertisers will follow, and demand should be strong in a number of categories even if there's another lockdown.
3. Michaels: Hone your hobbies
According to the U.S. Census Bureau, sales at sporting goods and hobby stores have boomed in recent months after an initial decline during lockdowns. Starved of socializing and the usual ways to spend time, Americans have turned to activities like sports, exercise, and at-home hobbies that are an easy way to stay occupied during a pandemic.
This is where Michaels, the nation's biggest arts-and-crafts retailer, shines. The stock has soared during the pandemic, with performance significantly better than expected. In its second quarter, comparable-store sales jumped 12%, including a 353% surge in e-commerce. The company has vastly improved its digital operations during the crisis, adding things like curbside pickup so customers can shop without having to step inside the store. Adjusted operating income in the quarter jumped 41%, showing the surge in online spending is translating into profits. The company also said it would hire 16,000 employees for the holiday season, slightly more than the 15,000 it added last year, a sign that it's anticipating a strong holiday season.
Like Pinterest, Michaels seems well-positioned to benefit from increased time at home and interest in hobbies and similar projects. Another lockdown would likely only boost spending at the crafts retailer.