"The stocks of some leisure companies have dropped so much in early 2020 due to lost business related to the coronavirus pandemic that I believe they could be attractive value investments for the longer term," says Rebecca Baker, portfolio manager of Fidelity® Select Leisure Portfolio (FDLSX).
Unlike prior downturns, where it seemed unclear how a shock to industry demand might be resolved, Baker believes self-quarantining, testing, and other measures could eventually help to control the spread of the virus, allowing consumers to return to leisure activities.
She’s also encouraged by what she considers to be significant monetary and fiscal support for the global economy, which she thinks will help particular leisure companies survive the downturn. "As long as the companies held in the fund have the balance sheets to weather this storm, I think they still represent good long-term investments," she says.
Weak consumer demand for restaurants, retail businesses, and travel appears likely to continue in the near term, according to Baker, and she also sees potential for some lingering economic impact due to lost jobs. However, she sees very little change in long-term earnings power for companies in the leisure segment that she believes can prosper once we move beyond the ongoing coronavirus pandemic.
Baker remains focused on companies with strong balance sheets and likes how many of them have done right by their employees by continuing to pay salaries even as they temporarily closed some stores. "Good examples are Starbucks (SBUX) and Chipotle Mexican Grill (CMG) which I think could resume operating at a very high level when consumer demand recovers," she says.
Rebecca Baker is portfolio manager of Fidelity® Select Leisure Portfolio, which held securities mentioned in this article on March 31, 2020. As of this date, Starbucks composed 21.17% of fund assets and Chipotle composed 6.20% of fund assets.
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