Hotels & Resorts stocks are overpriced and the market hasn’t realized it yet

by water_boat

In fact, most of the boomer stocks are overpriced right now due to the recent PFE and MRNA’s vaccine news, but hotels & resorts stocks ($MGM, $MAR, $HLT) are the most inflated out of them all and will soon be given a reality check.

This is just my speculation but I believe the public is overly optimistic about vaccines and how the subsequent distribution and logistics will pan out. I’ll keep my DD short and sweet.

The Race between the 4 Biotechs:

Pfizer (PFE):

  • 95% efficacy
  • 2 dose
  • 50 mill doses to be produced by the end of 2020
  • Must be kept at -70 degrees Celsius (-94 degrees Fahrenheit)
  • Submitted to FDA for Emergency Use Approval (optimistic timeline for approval = end of 2020)
  • People with special licenses can administer the vaccine shots

Moderna (MRNA):

  • 94% efficacy
  • 1 dose
  • 20 mill doses to be produced by the end of 2020
  • Must be kept at -20 degrees Celsius (-4 degrees Fahrenheit)
  • Hasn’t been submitted to FDA for EUA yet, but getting documentation prepared
  • People with special licenses can administer the vaccine shots

AstraZenenca (AZN):

  • Currently in Phase 3
  • Expected to release data by the end of 2020
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Johnson&Johnson (JNJ):

  • Currently in Phase 3
  • Expected to release data in February 2021

Relative Pricing and Comparison

MGM Resort International (MGM):

  • -14% pps of pre-covid levels
  • Occupancy rate 44%
  • Revenue: -68% vs last LYQ3
  • Negative EPS
  • 25% employees terminated

Other Industry Leading Boomer Stocks

  • CCL (cruise) = -57% pps of pre-covid levels
  • AAL (airlines) = -54% pps of pre-covid levels
  • SPG (mall) = -42% pps of pre-covid levels
  • JWN (retail) = -48% pps of pre-covid levels
  • LVS (casino) = -18% pps of pre-covid levels

MGM is inflated compared to the other boomer stocks as it’s very much near pre-covid levels.

Macro factors

A sub-premise of this post is that whatever brought MGM’s stock price to what it is today was artificial and it isn’t reflective of a healthy incline. The volume popped off per vaccine news, but now the volume has significantly dropped at the current levels. Buyer power is at its tipping point and a single bad news can easily trigger a large sell-off as the good news have now all been priced-in. But what will trigger the sell-off?

The Sell-off Triggers

  • The relief bill’s benefits is all set to end on Dec 31 (this includes government bailouts). We were expected to make stimulus negotiations post-election, but both sides aren’t looking to work with one another. Other analysts predict that productive negotiations will only resume once Biden is in office which is in January.
  • Rising COVID cases. US COVID cases hasn’t yet peaked as we continue to set new hospitalization and case records every day.
  • Thanksgiving is cancelled, but maybe even Christmas and New Years celebrations, too. Hotels&Resorts are one of the greatest attractions during Christmas, but it seems like we’re going to stay in lockdown.
  • Vaccine Distribution&Logistics issue. As mentioned, countries and states will continue to face big challenges in vaccine delivery. One logistic issue in the headlines can induce great amounts of fear triggering sell-offs.
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Conclusion: In the short to medium term, there are no news that awaits for hotel&resort stocks that points bullish. The buyer power has peaked and now, they are headed for a big correction.

Position: $MGM 26.5p 12/31

Proof:

$MGM 26.5p 12/31

 

Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence or consult your financial professional before making any investment decision.