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Washington has engaged in one of the biggest cash giveaways in the history of the world for Operation Warp Speed.
That's the name of the U.S. effort to produce a vaccine for COVID-19, and so far, the government has sunk a total of $10.79 billion into deals with various pharmaceutical companies.
The goal is to obtain roughly 300 million doses by 2021. The U.S. Department of Health and Human Services (HHS) has said that vaccines will be given to Americans for free. However, healthcare companies are more than likely to charge some form of payment for administering the shots.
I've spoken to people about who will be getting the first round of COVID-19 vaccines when it's commercially available. Naturally, doctors, nurses, bus drivers, and essential workers will be first in line. Then, everyone else will follow suit.
While I'm typically a skeptic, I believe we're likely to see a vaccine by the end of the year. Even if I disagree with the massive cash giveaway approach, I am fully aware that when someone gets it right, it will be a perfect time for the U.S. economy.
In fact, it's been a gold rush for insiders speculating on the winner of the vaccine race. But I'm not interested in this race; it could be any number of biotech companies that win the prize.
Instead, I'm more interested in tapping into another COVID-affected part of our lives… one that will get a bounce once a vaccine emerges. It's an intriguing, contrarian play, but one with huge pay-off potential in both the long and short term.
I'm talking about the beaten-down entertainment and recreational stocks. And I have two trades for you today that could profit handsomely…
The Long of It – Dave & Buster's Entertainment
For the long term, I like the opportunity to get in on Dave & Buster's Entertainment Inc. (NASDAQ: PLAY).
If you don't know the company, it's an entertainment company that operates bars and restaurants with arcades for adults. They're very popular, and even though I've only stepped into one location in my life, I get the appeal.
Currently, the restaurant and arcade company has closed its stores across the United States. Fifteen thousand hourly team members have been placed on temporary leave, store management and corporate staff have been reduced by nearly 90%, compensation of the senior leadership team has been reduced by 50%, and the Board of Directors has suspended Directors' cash compensation for the remainder of the year.
I'm looking at Wall Street's extremely bearish outlook on the stock. The short interest currently sits at 40%, which is a significant amount of people thinking that the stock has nowhere to go but down. But it makes for an intriguing, long-term, contrarian play.
The reason why I'm long on Dave & Buster's is simple. One of the top private equity companies in the world – KKR & Co. Inc. (NYSE: KKR) – injected a huge amount of cash into the firm back in January and pushed the stock to $49.
Today, shares trade around $15.
I'm impressed that instead of cutting management checks, the company has really done all it can to preserve the business. It's had discussions with landlords and vendors to reduce expenses, extend payment terms, and obtain other payment concessions.
The company is in survival mode, which is what we want to see right now. With KKR involved, I'm expecting that Dave & Buster's Entertainment survives and thrives on the other side of COVID. By 2022, I think the stock will double from its current value.
The Short of It — Eventbrite
On the short-term trade, I think that there's a very good opportunity to tap into an industry that has been hit hard by the epidemic.
Eventbrite Inc. (NYSE: EB) operates a ticketing and experience technology platform in the United States and internationally. Its platform integrates components needed to plan, promote, and produce live events.
Of course, there are no live events in the United States right now. So, demand for its services is low, and the company's stock has taken quite a hit. Shares are still off more than 50% from their 52-week high. The silver lining here is that demand picked up a bit in the second quarter as event planners and creators turned to online events and used Eventbrite's software to help make those events happen.
While I expect revenue to remain subdued, I am not discounting the potential for speculators using trading apps like Robinhood to boost this stock as we move closer to either a vaccine or a highly effective treatment for COVID-19.
Typically, I would recommend that we go out until January 2021 with an options play. However, given the fact that the options chain is a little less liquid in that month, I'd like to come up to October 2020 – to an expiration date of Oct. 16, 2020.
I don't know about you, but two months under COVID lockdowns feels like two years. And a lot of speculation and market changes could occur within that time. If we get any good news in the next two months, I think there is ample opportunity for this stock to run. So, I recommend that traders take a look at the Oct. 16, 2020, $10 call for $1.30 or better.
The risks of options trading with out-of-the-money calls are that they could go to zero, and you lose your premium. However, I would look for a quick bump on this on positive news and aim to exit the position if the call jumps to $1.80 to $2.
And in the meantime, don't forget to check out my colleague Shah Gilani's latest presentation…
You see, Money Morning's brand-new chief investment strategist is going live in his first-ever segment of BUY THIS, NOT THAT.
In 30 minutes or less, Shah is going to run through all 50-plus stocks you should know about – for better or for worse. Shah is not holding back; prices, tickers, and company names will be coming your way fast. Be ready to take notes, and don't be late…
About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, and consultant with degrees from Northwestern, Johns Hopkins, Purdue, and Indiana University. He is a seasoned financial and political risk analyst, with a focus on stocks, hedge funds, private equity, blockchain, and housing policy. He has conducted risk assessment projects for clients in 27 countries, and consulted on policy and financial operations for some of the nation's largest financial institutions, including a $1.5 trillion credit fund, a $43 billion credit and auto loan giant, as well as two of the largest Wall Street banks by assets under management.
Garrett joined Money Map Press as an economist and researcher in 2011, specializing in alternative strategies with an emphasis on fundamental and technical analysis.