Global stock markets having fallen a long way over the last month. I believe a major opportunity is now emerging for long-term investors. So I’m following what some of the UK’s top portfolio managers are doing. That is, cautiously drip-feeding money into the market.
That said, I’m being highly selective about my investments. It goes without saying, some industries are going to be impacted more than others by the coronavirus. With that in mind, here are two industries I’m avoiding right now.
Airlines
One that’s likely to be impacted significantly is the airline industry. With the world going into isolation mode and countries closing borders, it looks like airlines are going to be hit hard.
Already, major airlines such as British Airways and easyJet have drastically cut flying schedules. British Airways owner IAG said it will cut its flying capacity by at least 75% in April and May.
“Demand is drying up in ways that are completely unprecedented,” says airline consultancy CAPA Centre for Aviation. Ultimately, this disruption is likely to have a huge impact on near-term cash flows and profits. Some airlines are at risk of going bust. Government support will most likely be needed.
“European aviation faces a precarious future and it is clear that coordinated government backing will be required to ensure the industry survives and is able to continue to operate when the crisis is over,” easyJet’s CEO Johan Lundgren said last week.
Without coordinated government support, some airlines could be bankrupt by the end of May, noted CAPA Centre for Aviation.
Airline stocks have already been hit hard. IAG shares have fallen from near 650p to 280p over the last month. EZJ shares have plummeted from 1,500p to 540p. I won’t be buying though. Given that coronavirus could impact the travel industry for six months or more, I think airline stocks are way too risky right now.
Hospitality
Another industry that’s likely to take a huge hit is the hospitality industry. Restaurants, cafes, pubs, bars, and hotels are all likely to be impacted in a big way.
According to trade group UK Hospitality, some of the largest hotel chains, pubs, and restaurants may not survive for much longer if the government doesn’t step in. “These are cash businesses. Put simply, if you don’t have people coming through the door, you will run out of cash very quickly,” said the group’s CEO Kate Nicholls last week. Nicholls, who has described the coronavirus as an ‘existential threat’ to the industry, believes urgent government intervention is required.
Within the FTSE 350, there are a number of hospitality stocks that I’ll be avoiding for now. For example, pub operators such as JD Wetherspoon and Marston’s. Then, there’s restaurant owner Restaurant Group, which owns brands including Wagamama and Coast to Coast. There are also hotel operators such as InterContinental Hotels and Whitbread. And remember catering companies such as Compass. All are likely to struggle in the near term.
At some stage, some of these companies could be great buys. However, at present, I think it’s safer to avoid them.
