Yesterday, Pfizer announced the results of its COVID-19 vaccine trial, and data showed it had an efficacy rate of over 90%.  If this vaccine is approved for emergency-use authorization from the FDA, this will be a significant step in the fight against the coronavirus.

This news sparked a market rally and the Dow Jones and S&P 500 indices touched record highs.  This rally was led by several companies in beaten-down industries including airlines, energy, hospitality, entertainment, and brick-and-mortar retail surged higher. 

Here, we look at three such stocks that should stage a rebound in the next few months if the vaccine is approved for widespread use.

An airline company

The passenger airline space was one of the hardest-hit industries in 2020 as international borders were closed and air traffic came to a standstill. The airline industry is a capital-intensive one and companies including Southwest Airlines (LUV) burnt millions of dollars at a time when revenue declined at a massive rate.

However, Southwest Airlines gained close to 10% on November 9 on the vaccine news and is a stock to keep on your radar in the next year. Prior to the pandemic, Southwest was one of the best performing airline stocks and returned 390% in the last decade between 2010 and 2019.

Southwest experienced a 68% year-over-year revenue decline in Q3. While its revenue of $1.79 billion was in line with consensus estimates, Southwest’s adjusted loss of $1.99 per share surpassed Wall Street forecasts of a loss of $2.35 per share.

Southwest ended Q3 with a cash and investment balance of $14.6 billion while debt and lease liabilities stood at $12.6 billion. Its liquidity position is robust and the company has maintained a fundamentally strong balance sheet to tide over these uncertainties. It will take at least two years for air traffic to reach pre-COVID-19 levels and Southwest’s strong financials will help it overcome a tough period with minimum damage. 

A dividend giant

Stocks in the energy sector also traded higher yesterday. Shares of midstream heavyweight Kinder Morgan (KMI) rose 7.1% to close trading at $12.30. The company operates over 38,000 miles of pipelines and 180 terminals in North America.

Though Kinder Morgan remains relatively immune to oil prices, the stock is still trading 45% below its 52-week high. This decline has meant its dividend yield is now a tasty 8.54%. In the first three quarters of 2020, KMI generated $1.47 per share in DCF (distributable cash flow) while it paid $0.7875 per share in dividends, indicating a healthy ratio of 55%.

The company derives 90% of its EBITDA from take-or-pay contracts allowing it to generate a stable stream of cash flow irrespective of the state of the economy. Kinder Morgan’s robust business model makes the stock one of the top bets in a market rebound.

The House of Mouse

The final stock on the list is media and entertainment behemoth Disney (DIS). The House of Mouse has taken investors on a wild-ride in 2020 as Disney stock fell from a record high of $153 to a multi-year low of $79 in less than three months.

Currently, DIS stock is trading at about $140, after it gained close to 12% in market value on November 9. While Disney’s theme parks were shut, the company’s streaming platform was thriving amid the COVID-19 pandemic. During the last earnings call, it confirmed Disney+ has over 60 million customers which is a staggering figure given that it entered the streaming space just 12 months back.

As the pandemic is slowly brought under control, people will start flocking to Disney theme parks and drive revenue growth higher in the upcoming quarters of 2021. Further, the company will also be able to restart movie production which has been a key driver of its top-line in the last two decades.

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LUV shares were trading at $43.68 per share on Tuesday morning, down $0.21 (-0.48%). Year-to-date, LUV has declined -18.77%, versus a 10.61% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditya Raghunath

Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist. More...

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