What Is a Reopening Stock?

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A “reopening stock” is a stock that benefits when investors see signs of more reopenings amid the coronavirus pandemic and falters in the opposite scenario.

The coronavirus has caused an unusual recession -- for one thing, many of the companies getting hurt are ones that rely on people leaving their homes, regardless of how sensitive these companies are to economic changes.

So if people can’t go to restaurants, concerts, sporting events or go on airplanes, then these stocks will get hit when the market is bearish on the reopening and they’ll run up when states and countries relax stay-at-home measures. These stocks are often consumer discretionary. Banking and oil is impacted, as lowered economic demand and lowered earnings means less lending and lower interest rates. As for oil, less travel means less demand for oil.

For many reopening stocks, the damage has been great. Now their ability to repay debt has been hit hard. While dramatically lowered interest rates and fiscal stimulus has aided the liquidity positions of some of these companies, the clock is ticking. There’s only so much fiscal stimulus to go around. And interest rates can’t go much lower, although more borrowing has recently enabled some companies to refinance and retain employees, which is good for the economy. Still, the generally higher interest rate on the debt of these reopening companies has put pressure on their stock valuations.

The economic shock caused by the recession is yet another negative for these incidentally cyclical companies. Layoffs means less consumer spend, which is counteracted somewhat by all of the stimulus.

Some examples of large reopening stocks: Starbucks  (SBUX) - Get Report, Darden Restaurants  (DRI) - Get Report, all of the airlines like United Airlines  (UAL) - Get Report, Booking Holdings  (BKNG) - Get Report (owns booking dot com), MGM Resorts  (MGM) - Get Report, and Wynn Resorts  (WYNN) - Get Report.

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