Sometimes it pays to bet against the market, so we examine two companies that have been battered by the pandemic and determine the better investment
The coronavirus outbreak hurt restaurants, travel, brick-and-mortar shops, and movie theaters particularly hard. Two companies from these sectors, AMC (NYSE: AMC) and Macy’s (NYSE: M), were not immune to the devastation and are the topic of our discussion. Although their stock prices have done okay recently — one for a surprising reason — investments in both companies would definitely be considered contrarian; so which company is a better option for your portfolio?
Impact of the COVID-19 pandemic
Movie theaters were shuttered for months and when they reopened, people hesitated to return. On top of that, studios either kept postponing tentpole releases or chose to release them on their streaming services. The icing on the cake is that productions are still halted or delayed to prevent further infection. This is the reason why AMC’s revenue in its last quarterly report was down over 90% year-over-year (YoY) and why the company continues to run on fumes.
At the start of the outbreak, non-essential shops like Macy’s were shuttered so the company’s retail sales took a hit. Upon reopening, growing unemployment numbers and little relief coming from the government kept sales dismal as well. And to add insult to injury, Macy’s traditional Thanksgiving Day parade was restricted to only one block to limit the spread of COVID. The company’s revenue is down 21.86%, 34.86%, and 44.53% for the last three quarters, respectively, YoY.
AMC: Bull vs Bear Arguments
Before the pandemic hit, AMC was doing just fine; its revenue was up over 85% since 2015 and the century-old company was paying a modest dividend. Once the outbreak reared its ugly head, AMC started hemorrhaging cash and has yet to recover. The ‘Tenet’ experiment to revitalize film-going failed in the U.S. and very few studios are releasing new films to theaters. The company signed a revolutionary deal with Universal to minimize release windows and share in streaming profits last year and started offering theater rentals for small groups, but the fruits of these labors are yet to be realized.
AMC was able to secure nearly $1.3 billion in funding recently to keep it above water in 2021. The most positive outlook for AMC and other theater companies is the vaccine distribution and a societal return to normal. I see people crowding bars, coffee shops, and swimming pools but all these crowds are outdoors. I reckon they’re just dying to return to the cinemas as soon as they feel it’s safe and the vaccine is the only way that will happen.
Macy’s: Bull vs Bear Arguments
The pandemic helped Macy’s strengthen its digital presence as the company saw a 53% growth in online sales in Q2 2020 and accounted for 38% of all Q3 2020 sales, up 14% YoY. In fact, the company is in the top ten e-commerce sites in the U.S. and will continue to expand its online footprint while shuttering 45 stores this year as part of a three-year plan to close down 125 stores. Moody’s has predicted a retail rebound this year, and with many retailers having gone bankrupt, the survivors stand to reap the rewards.
It would seem that the company has both fronts covered on the retail map and is doing something right as it cleared all its inventory last year and is ready with new products. On the digital front, Macy’s has enabled better browse and filter functions and enacted a buy-now/pay-later option to attract more consumer spending. Streamlined vaccine distribution will boost Macy’s profits as well.
Which stock is a better buy right now?
I love the cinema — particularly going to movie theaters, getting my popcorn, and escaping in a dark room and a huge screen. I know a lot of people feel the same way and no matter how many new streaming services pop up or VR gadgets are invented, there will never be a substitute for the movie-going experience. Having said that, I feel Macy’s is the safer bet of the two stocks. AMC has seen a price surge lately thanks to the short-squeeze play initiated by WallStreetBets on Reddit, so all the more reason to avoid. Buy and hold Macy’s as it continues to expand its digital footprint.
A MyWallSt subscription gives you access to over 100 market-beating stock picks and the research to back them up. Our analyst team post daily insights, subscriber-only podcasts and the headlines that move the market. Get your free trial now!
MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.