PLEASANTON, CA / ACCESSWIRE / March 23, 2020 / At Valentine Research we have been advising people to look at chips, chips and chips. Three very different kinds of chips. But all three have stocks are great buys now because they will outperform the market for very different reasons.
All this week we will be talking about the toll that the COVID-19 pandemic is having on the economy and on stock prices. As of Friday's, close, the Dow and the S&P 500 have both dropped a third in just over a month. Political leaders and central bankers worldwide are racing to reassure the markets.
The sudden stoppage of economic activity is very different than a normal recession. Some segments are operating normally and seeing unprecedented business activity. Other are seeing demand build up and will be ready to bounce back strongly as daily activity resumes. So, instead of trying the impossible task of timing the bottom, let's look at stocks that are going to be the growth leaders in the recovery.
Chips That Power Remote Work
Millions of Americans are suddenly and with little warning, working from home. This has caused immense challenges for many company's IT systems. Demand is surging for the technical infrastructure to support all these workers. I want to start by focusing on Intel, Broadcom, Xilinx and Lam research. Lam Research is also very close to Tesla which is in Fremont where I went to high school. Before the crisis began, just a few months ago, these chip makers were already doing record business. Due to concerns about supply chains, stocks in this segment are down 50%.
With demand for chips soaring due to the dramatic increase in remote work, and with business and political leaders on both sides of the Pacific eager to restart trade as soon as possible, we expect this segment to soar to new highs within a year to 18 months.
Chips That Fuel Our Cravings
It isn't just toilet paper selling out coast to coast. So, the second chip I'm going to talk about starts with Frito-Lay. This snack giant is owned by PepsiCo which has grown to be major producer of food, snacks and water. They also own the Quaker Oats Company, Ruffles, Cheetos, Tropicana and Gatorade. Their Aquafina brand also makes them one of the leaders in bottled water.
Another diversified food and snack company is Campbell Soup. You can't go into a grocery store today without seeing empty canned soup and snack aisles. Campbell also owns Kettle Chips, Diamond Nuts and many other popular snack brands through its subsidiary, Snyder's-Lance, Inc. Snyder's-Lance is the second largest salty snack maker in the United States. It was formed by the 2010 merger of Lance and Snyder's of Hanover.
These companies are selling all they can produce. Actual consumption of toilet paper isn't going to increase because people fill up their garages, so the run on things like that won't last. But people are definitely eating at home more and snacking a lot more. I can't believe the stocks selling down 20%. They should be trading at new highs in a down market. This isn't a matter of people stockpiling food they are not going to eat. Tens of millions of Americans are eating and snacking at home more and the restaurant industry's losses are the snack food industry's gains. This drop cannot even be explained by supply chain concerns as every government views the grocery supply chains as an essential business.
Chips Are Down in Vegas, But Will Be Back Up Big
In 2008 I wrote articles called 'Crane and Cranes' about the crash in real estate development. I did seminars on how there were 40 construction cranes stopped on paused development projects in Las Vegas. My brother was involved in a development project for long-term senior care centers. Senior citizen housing was growing because of the aging of the Baby Boomers. The financial crisis of 2008 idled all these development projects and the ponds on the properties started attracting animals back.
My brother lamented to me that there were 'white bird cranes' on the property instead of gray-haired senior citizens because they couldn't finish the projects. The demand for long-term care and senior housing has kept growing. Yet, these stocks are trading down around their 2008 levels again, but without the crazy construction financing issues as a cause.
The third category of chips are casino chips. With travel seemingly halting overnight and casinos and other non-essential businesses shutting down coast to coast, casino related stocks are down 83%. This is unbelievable and a great buy and hold opportunity.
Vegas will always be Vegas and it will return to its glory quickly. When cooped up Americans look to travel again, they may be slower to travel oversees again. School closings mean parents are getting all the family time they can handle so they are not going to rush out to go to Disney any time soon.
But the 'Vegas vacation' is always a classic adult get away. Caesars Entertainment Corporation stock is currently at four dollars, down from $25 recently.
Wynn Resorts was trading last year at $216 and you can now pick it up in the $50s. Wynn will benefit not just when people return to Vegas but also when pent up Chinese demand drives a surge in trips to Macau, where Wynn also has a strong presence.
MGM Resorts International, operates many historic properties including Bellagio, Mandalay Bay, MGM Grand, and Park MGM and was trading not long ago at $34. Two smash hit Cirque du Soleil shows will help MGM recover fast. At The Mirage, the 'Beatles LOVE' show was selling out for months before the pandemic. The Mandalay Bay has a similar draw with its 'Michael Jackson: One' show. MGM Resorts International is a complete steal at six dollars and could trade back halfway towards median point quickly and you can more than double your money.
We are going to beat the virus and businesses selling chips, chips and chips have all been discounted more than they should have by panicked investors. In the United States, Congress and the President will act decisively to stabilize the markets. They don't have a choice. We see huge opportunity in these sectors for investors who act today.
Valentine Research & Associates
Valentine RESEARCH & Associates
SOURCE: Valentine Research & Associates
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