As America Reopens, Explosive Pent-Up Demand Will Benefit These Companies First

Thirty-five states are now reopening or about to reopen after long coronavirus-driven shutdowns. The United States has shed about 26 million jobs over the past two months, so clearly the hope is that companies rehire the employees they've had to let go and that business quickly goes "back to normal."

But consumers have been absolutely battered over the past two months; there's less disposable income for them to spend.

As the opportunity to spend reemerges, folks in these states are going to have to decide just what it is they've missed most during the lockdown.

And therein lies another lucrative "Reality Gap": The hope for a rapid "V-shaped" economic recovery versus the more likely slow, phased return to economic normalcy.

Other countries that are further along in their reopening process give us some clues as to how this could play out in the United States. And here, we're seeing some early signs that some industries are experiencing a quicker recovery than others.

So I've isolated a few stocks, all trading at bargain basement prices, that should be the first to benefit from that severely pent-up demand...[mmpazkzone name="in-story" network="9794" site="307044" id="137008" type="4"]

Reopening Play No. 1: Getting to Work

Millions of people are out of work. Many that are working have had wages cut. Most Americans are still in "lockdown" mode.

So, naturally, car sales are down... but in the automobile industry's jargon, sport utility vehicles (SUVs) and pickup trucks count as "light trucks," not cars. And sales of light trucks rose in the first quarter of this year, even as car sales were falling.

This continued in April, when for the first time ever, more pickup trucks than passenger cars were sold in America.

Data shows that U.S. households with annual incomes ranging from $50,000 to $99,000 kept on buying vehicles, mostly SUVs and pickup trucks.

Households on either side of that income range retreated, explaining why sales of both cheaper sedans as well as more luxury cars both fell.

The fact that almost every car manufacturer is now offering no-interest loans for five, six, even seven years helped too.

And more incentives are on the way.

As states begin to reopen, we're going to see more of this. Already there are signs that people returning to work prefer to drive rather than risk getting infected on public transportation.

More time spent in cars is going to mean more demand for nicer ones.

And in China, which is months ahead of us in relaxing restrictions, car sales were up 4.4% in April, compared to April last year. That's the first uptick in car sales in 22 months.

Now, this trend away from sedans and in favor of pickup trucks and SUVs started in 2014, long before the coronavirus pandemic. But it's now accelerating.

The best stocks to buy here are automobile companies that rely the most on light trucks. General Motors Co. (NYSE: GM), for example, saw its pickup sales go from 10% of total sales a year ago to almost 30% this past quarter.

GM's joint ventures in China grew its April sales by double digits compared to the year before.

Of course, the most popular pickup truck in America continues to be Ford Motor Co.'s (NYSE: F) F-150 lineup. While sales were down in the first quarter, that is mainly due to large companies not upgrading their fleets of pickups at the same time as last year.

As more states reopen, and as people start commuting back to work while regaining confidence in their finances, both companies may see an even bigger bump in sales.

But a word of warning: Be wary of making bets on car sales right now. The market is already oversupplied, and now that car rental giant Hertz Global Holdings Inc. (NYSE: HTZ) is on the verge of bankruptcy, things could get even worse.

If Hertz goes under, there is a very good chance the U.S. used-car market will suddenly be flooded with hundreds of thousands of cars from the company's rental fleet.

A big supply of used cars is going to be good for car buyers, but not for the Big Three new car manufacturers.

That's why the pent-up demand vehicle spending spree is going to be seen more in used cars than in new. And for that prognostication, we have history on our side. Take a look at how new car sales fared versus used in the last recession:

So instead of Ford or GM, look to the top used car companies. Carvana Co. (NYSE: CVNA) and CarMax Inc. (NYSE: KMX) are both poised for growth; CVNA shares have already popped after their earnings report - and my Markets Live viewers got the chance to rake in some profits there.

Despite lower numbers for the official reporting period of January through March, Carvana added that sales in April were up 30% versus the same period last year. Since Carvana is already online-only, it is poised to take advantage of the pent-up demand for used cars, and it's a buy on every pullback, like we saw on Tuesday afternoon.

Reopening Play No. 2: Looking Good

As we start going back to work and seeing people outside our households again, appearances will start to matter more.

I'm not just talking about cutting our quarantine hair back into shape.

See, after the SARS epidemic swept through Asia in 2002 and 2003, affected countries took steps similar to what we're seeing now: masks, social distancing, closing offices, and so on.

Once they reopened, consumers pushed spending on food and cosmetics back to pre-outbreak levels.

But spending on clothing actually soared way higher than it had been before.

We're seeing that happen again, with Chinese cosmetics sales already recovering somewhat in March from the roughly 70% plunge in February.

It's only natural. As we start seeing people again, looking our best is again important. Not to mention that some new cosmetics or a new outfit can improve our mood and mark a new beginning.

Of course, today's COVID-19 pandemic differs in some very important ways from the SARS outbreak. First, SARS spread only from people with clear symptoms, while some people, for reasons yet unknown, can asymptomatically spread COVID-19.

That means social distancing is much more important this time around, and people will keep trying to avoid crowded places for longer.

Second, states and cities here in America are in some cases beginning to reopen while their number of daily COVID-19 cases are still rising. That's going to make people even keener to avoid contact with strangers.

And that's why I believe online clothing and cosmetics retailers will see the biggest uptick in sales here in the United States.

A stock with lots of upside in this scenario is Ulta Beauty Inc. (NASDAQ: ULTA). This upside can be seen in its price/earnings ratio (P/E), which is lower than other single-purpose cosmetic companies like Kao Corp. (OTCMKTS: KAOOY), and KOSÉ Corp. (OTCMKTS: KSRYY). And while Ulta has a large brick-and-mortar footprint, their online sales grew almost 30% in 2019 to account for roughly 15% of sales now.

Reopening Play No. 3: Staying Safe

America is reopening, people are going back to work, and the economy is restarting. But as we've seen, the threat of COVID-19 is still very much with us. Every business that reopens, whether it's an office, a factory, or a theme park, will need to change things.

Grocery stores have put plexiglass barriers between cashiers and customers. Other businesses are rethinking their office layouts to allow for social distancing and increasing cleaning.

But what all businesses will have in common is the need for testing. Even the best safeguards won't help if too many employees are infected elsewhere.

So even though the biotech companies at the forefront of the response to COVID-19 have soared this year, they still have ways to go.

Two especially stand out. Both Abbott Laboratories (NYSE: ABT) and Quidel Corp. (NASDAQ: QDEL) were granted emergency authorization for new tests in the last week, and they have some of the best and quickest tests on the market right now. With demand for more tests still outstripping demand, these are likely to be winners going forward.

COVID-19 is like a test nobody knows how to pass. This is a rapidly developing situation; we could see even more chances to profit as states and entire countries take the first steps toward reopening. But a rising tide won't lift all boats, at least not at first. Be extremely selective when it comes to where you're investing.

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