The stocks of companies most affected by the crisis may be undervalued

One of the most important questions that investors in capital markets are currently asking is how the sectors most affected by the crisis will cope with in the future. Can hotel chains and airlines be an excellent investment opportunity?

Very low interest rates have been setting trends on capital markets for over 10 years. Therefore, investors have to look for solutions other than bank deposits and government bonds. If they want to earn any income or at least avoid inflation-related losses, they need to turn to higher-risk assets. This means that investments in corporate equities can become particularly attractive.

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Stock market increases bypass some industries

Investors seem to understand their situation perfectly well. Already from the second half of March, virtually all world stock indices are constantly growing, and the most important American indices: Dow Jones Industrial Average and S & P 500 despite the deep crisis, they are close to historical records.

From the outset, the market's response to the global crisis has been an increase in the share of tech companies such as Amazon, Apple Lossless Audio CODEC (ALAC), or Tesla. Investors believe that it is the modern technologies that will help in the fight against the economic slowdown. Therefore, the value of the Nasdaq New York Technology Exchange Index, after a decline of almost 25% in the first half of March, has so far increased by as much as 62% to date. Counting from the beginning of the year, investors earned over 24%. Other industries that are doing well in times of crisis are pharmacy, health care and the food market. Contrary to common opinions, the situation of the car industry looks quite good. Index S&P Automotive Retail Subindustry has increased by more than 7% since the beginning of the year.

However, there are several sectors of the economy that have recorded particularly large losses and are not affected by the boom lasting from the end of March. Industry index of the largest hotel companies S&P 500 Hotels Resorts & Cruise Lines has been losing over 40% since the beginning of the year. The same is true of the airline (-44%) and real estate (-12%) industry index. Could these drops be a buying opportunity?

Hotel chains and airlines will remain unprofitable?

Łukasz Blichewicz

Each investor should answer the question of whether airlines, hotel chains and office real estate companies will remain unprofitable in the long run. If so, you can try short selling the stock. However, if in the perspective of a few months, the currently unprofitable sectors start to regain balance, we can witness an excellent investment opportunity.

It should be remembered that huge amounts of money from the stimulus measures of governments and central banks go to the global stock exchanges. After the first signs of an upturn in the hardest hit industries, investors may want to use these funds to buy stocks at very low prices. In order to make the right decision, it is best to observe the macroeconomic indicators. The first estimate of US GDP in the third quarter will be announced on October 29. If the forecasts of 15% growth over the second quarter are confirmed, there could be a green light for rising stock prices of the hardest hit companies.

Author: Łukasz Blichewicz - co-founder and CEO of the Assay Group, expert in the development and financing of technology companies.