Recovery stocks are all the rage right now as investors continue to bet on a “V-shaped” surge out of the coronavirus lockdown, but finding quality buys can be difficult.
AMC Entertainment Holdings Inc. (NYSE: AMC) has been one of the latest beneficiaries of a rally after announcing it was planning to reopen “almost all” its U.S. and U.K. movie theater locations in July in a Tuesday announcement, according to The New York Times.
The news sent shares soaring 21.9% overnight, and the stock continued to rally over 12% higher at the opening bell Wednesday morning. Check out the stock’s chart from only the first couple of hours of trading Wednesday morning:
Talk about volatility …
Find Quality Recovery Stocks
As retail traders continue to get more involved in the stock market, piling into stocks that are making all the headlines, Banyan Hill Publishing’s Jeff Yastine thinks investors should look for a guide instead.
“This is ‘typical Wall Street’ in my view, and shows why we need someone who can help us decipher the news instead of blindly reacting to it,” said Yastine, Editor of Total Wealth Insider.
Yastine has been bullish throughout this recovery and notes that after investors realized COVID-19 wasn’t a “zombie apocalypse,” some figured out “that the better-run companies are going to survive the pandemic and do OK coming out the other side.”
But now there is a new threat looming as investors continue to look for recovery stocks.
“The danger for many investors is trying to figure out — as the economy slowly comes out of the pandemic in coming quarters — which companies are worth betting on for the long-term, and which ones are not?” said Yastine, who has seen it all through over two decades of experience as a financial journalist and investor, and a 16-year stint as an Emmy-nominated anchor for PBS’s Nightly Business Report.
AMC exemplifies a stock that is not a sure thing. Shares of the theater chain fell 7% Tuesday after its reported revenue sank 21.6% to $941.5 million in the first quarter after it was forced to close all its theaters in March. It posted a $231.6 million adjusted net loss for the quarter and also recorded a $1.85 billion impairment charge.
It’s furloughed all its U.S. employees and a significant number of workers in other parts of the world. Just last week, AMC also wrote in a regulatory filing that there is “substantial doubt” the company can “continue as a going concern for a reasonable period of time.”
Does that sound like a sure thing?
“The interest in some stocks lately, like the AMC theater chain, is little more than a lottery ticket in my view,” Yastine said. “In the 1990s pre-internet era, when people had fewer entertainment choices, theater chains had great business models. These days, that’s not the case.”
So instead of betting on the next big headline, Yastine is finding companies with sturdy business models for his Total Wealth Insider subscribers.
“Well-run companies, like the kind in my Total Wealth Insider newsletter portfolio, have the ability to survive a once-in-a-century pandemic, and grow in its aftermath,” Yastine said. “Some of my stocks are up more than 100% from the worst of the virus panic in late March, as investors finally realized that these kinds of companies aren’t going to go out of business.”
Yastine says there are still plenty of recovery stocks to buy into, but investors should be looking for quality stocks “that aren’t already at or near all-time highs.”
“Those kinds of companies have already seen the best of the recovery,” Yastine wrote via email. “They’ve gone from extremely undervalued, to fairly valued, to (in the case of many tech stocks) highly overvalued at this point. But there are still plenty of sectors — energy, retail, travel, utilities, etc. — where there are quality bargains to be had.”