Yesterday, Pfizer (PFE) and BioNTech (BNTX) announced that their trial vaccine was more than 90% effective in preventing coronavirus infections. There is still going to be a two-month “safety” period, where people who took the vaccine will be monitored to ensure that there are no side effects.  Assuming that the vaccine passes the safety test, it will have considerable positive effects on the global economy. 

The timing of this announcement couldn’t come at a better time as the infection rates hit new highs in the US, hospitals in many regions had been nearing capacity levels, and some countries were reinstituting lockdowns to mitigate the spread.  And health officials are now warning the public that social-distancing and mask-wearing could continue into 2022. 

While many parts of the economy have continued to grow under these circumstances, other parts of the economy have been significantly depressed such as airlines, hotels, restaurants, cruise operators, and casinos.  

A Light at the End of the Tunnel

As a result of Pfizer’s news, these sectors saw huge gains yesterday. This news means that the timeline for the world returning to normal could be pulled forward. If the vaccine receives FDA approval, it is possible that the vaccine could be distributed all over the world by the second half of next year. Once a certain portion of the population is immunized against the virus, the coronavirus’s contagiousness would be reduced,

In addition to the positive vaccine news, there have also been improvements in terms of understanding and treating the disease. Treatments from Gilead (GILD), Regeneron (REGN), and Eli Lilly (LLY) are effective in reducing mortality and helping people recover. This is also evident as case counts are rising but hospitalization and deaths are increasing at slower rates than earlier surges in case counts.

Despite these positive developments it’s clear that the next couple of months will be a challenging time. The winter weather means that the virus will get more contagious especially as people will spend more time indoors, and there is the potential for increased travel with family gatherings during the holidays. 

When Do We Get Back to Normal?

In terms of the stock market, the travel-related industry has been one of the most badly adversely affected by the coronavirus. So, it’s not surprising that it had the strongest increases in price yesterday following the vaccine news.

However, it’s interesting to note that many stocks in the industry were showing constructive price action despite a steady stream of negative news, such as rising coronavirus case counts and lockdowns in parts of the world. 

And, it’s certainly going to remain depressed for the next few months until the vaccine is freely distributed. However, these circumstances are likely priced into the stocks. 

Instead, I believe the most important factor for travel stocks is when will activity return to 2019 levels. A couple of weeks ago, it seemed like the coronavirus may persist until 2022-2023. Now, it seems that this timetable has been pulled forward. Possibly instead of 15-24 months, it’s six to nine months. This makes these companies much more attractive.

Although these stocks made impressive moves yesterday, there could be further upside. I expect there could be a rotation from tech stocks into beaten-down travel stocks over the next few months.

Thus, investors should consider having exposure to this theme given the potential upside. Three of the top stocks to take advantage of this theme are Uber Technologies (UBER), Allegiant Travel (ALGT), and Vail Resorts (MTN). 

Uber Technologies (UBER)

UBER’s core business remains ride-sharing. When the world returns to normal, UBER will capitalize on people’s pent-up demand to go out and partake in activities that were unavailable for so long. 

UBER is multifaceted and not just reliant on ride-sharing.  However, During the pandemic, the company has been able to do well by growing its food-delivery business which saw a huge uptick in growth during the pandemic. 

Additionally, Uber has a third unit which may have the most long-term potential – Uber Freight. Just like it connects customers with delivery-men and restaurants and drivers with riders, it connects companies with independent truckers who can use the app to pick up gigs. It allows companies to save money while scaling up deliveries.

Uber’s stock is up about 38% in November. Not only is this because of the news about Pfizer’s trial vaccine but also because of  Prop 22 being passed by California voters, which allows the company to continue to treat its drivers as independent contractors rather than employees. UBER is rated a “Buy” by the POWR Ratings. It has a “B” for Trade Grade and Peer Grade.  

Allegiant Travel (ALGT)

ALGT has been one of the strongest airlines. It’s only off 20% from its pre-coronavirus highs, while the airlines ETF – US Global Jets ETF (JETS) – is off more than 50%. 

One factor for this is that ALGT is mostly exposed to regional travel routes with less competition. Another reason is that ALGT has less exposure to business travel and international travel which are expected to remain weak for a considerable amount of time. 

Though some are predicting that business travel may never return to previous levels due to the convenience and cost-savings of video-conferencing and other technology tools, this is not a concern for ALGT. Its business was the most resistant to the pandemic and will bounce back the quickest as traveling to vacation destinations and to visit friends and family return. 

ALGT is rated a “Buy” by the POWR Ratings. It has an “A” for Peer Grade and a “B” for Trade Grade. Among Airline stocks, it’s ranked #2 out of 22.

Vail Resorts (MTN)

MTN, an operator of mountain resorts, is another travel stock that has demonstrated considerable relative strength. It’s up a whopping 111% from its March lows. It seems that investors are willing to look past their short-term challenges and focus on the bullish, long-term picture. 

This year, MTN’s earnings declined by 66%. But, next year, they are projecting that earnings will return to 2019 levels. The company will also benefit from the vaccine news and the inevitable pent-up demand to go skiing. 

MTN is also unique among travel stocks in that it made a new 52-week high in November. Most travel stocks remain well-below their 52-week highs, although they’ve seen some big gains in recent days.

MTN is rated a “Buy” by the POWR Ratings. It has an “A” for Trade Grade and Peer Grade with a “B” for Buy & Hold Grade. Among the Resorts group, it’s ranked #1 out of 14. 

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UBER shares were trading at $47.03 per share on Tuesday afternoon, down $1.15 (-2.39%). Year-to-date, UBER has gained 58.14%, versus a 11.71% rise in the benchmark S&P 500 index during the same period.

About the Author: Jaimini Desai

Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist for StockNews.com and the editor of the POWR Growth and POWR Stocks Under $10 newsletters. Learn more about Jaimini’s background, along with links to his most recent articles. More...

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