The decision to allow cinemas and pubs to reopen this coming weekend has proved very popular. Seen purely from an investment perspective, does this now make FTSE 250 stocks like Cineworld (LSE: CINE) and pubs operator JD Wetherspoon (LSE: JDW) bargain buys? And, if so, which is the best?
Here’s my take.
Cineworld: a trader’s delight?
Cineworld neatly sums up just how tricky investing in the leisure sector is at the moment. Priced just above 21p back in March, the shares went as high as 99p earlier this month. At Friday’s close, however, Cineworld shares could be yours for 64p. This is what happens when the only thing moving stocks is sentiment rather than earnings.
The most recent pullback makes sense when you consider the guidelines Cineworld must comply with when it reopens its doors. These include offering hand sanitiser on entry, floor markings and protective screens for staff.
Within screenings, staff will likely be asked to enforce social distancing rules and ensure people stay in their allocated seats. Factor-in fewer film showings and the costs of extra cleaning and you can see why a few in the market have decided to bank profits.
Now, it could be that some people would love the opportunity to see a film with no one around them. Some may also be sick of streaming movies at home and just want the big-screen experience, in spite of the dearth of new releases.
Personally, I just can’t see people sprinting back to their multiplex for a less-than-optimal viewing. As such, this still doesn’t feel like a good investment, even though people will surely continue making good money from trading Cineworld’s shares.
Does this make JD Wetherspoon a better buy by default? Possibly, but there are quite a few caveats.
Too big to fail?
As the UK’s biggest pub operator, the FTSE 250 stock will surely reap the benefits if things go well.
Its pubs have an average size of 4,000 sq ft of customer space, making social distancing less problematic than for some. Roughly 75% also have beer gardens or roof terraces. In addition to this, the company has introduced new queueing systems, disposable menus and screens to protect customers and staff. People will also be encouraged to order and pay via its app rather than at the bar.
Compare all this to smaller operators who don’t have the ability to invest a reported £11m in setting up their sites and JD seems like the least risky pick of the listed bunch. The shares are, after all, still almost 40% below where they were at the start of 2020.
On the other hand, JD Wetherspoon could suffer more than others if things go badly. An awful lot of sites are located in bustling cities. Logic would suggest these are at greater risk of a second wave and localised lockdown.
Regardless, the fact that ‘outspoken’ Chairman Tim Martin initially refused to close any pubs in spite of government advice may have cost the company a few previously-loyal customers along the way.
All told, I think JD Wetherspoon just about wins this battle of battered stocks and would be my pick if I had to choose between it and Cineworld.
What I am more sure about is that anyone considering adding either stock to their portfolios should check that they are suitably and sufficiently diversified elsewhere first.
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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.