Episode 37: Corona Bloodied Businesses

MAK: Mom’s going to the store later, you coming?

GRANT: I don’t know. It’s nice to get out, but wearing this mask is uncomfortable.

MAK: I guess if I had to smell your breath for an hour because you’re wearing a mask, it would be very uncomfortable.

GRANT: Ha, Ha. Funny. I always eat a mint or two before I put it on.

MAK: Now that’s funny. Do you think companies that make mints are selling more or less than they did before Corona?

GRANT: Do people eat mints because they like them or because they like fresh breath? Now, do they like fresh breath because they must wear a mask?

MAK: I never thought about that. Seems like everything is changing. Time to think about which companies aren’t doing well due to Corona.

GRANT: Hospitality seems to be getting hit really hard, based on the first episode when dad was talking about some of their issues.

MAK: You’re right. Airlines, hotels, theme parks, restaurants and more. Maybe we should jump into those and see how bad it is.

GRANT: Agree. Didn’t uncle Tony get back from Vegas last weekend?

MAK: Yeah he did. He said it was still kinda busy, but only every other chair could be filled at the game tables. Plus, some restaurants weren’t open and those that were, couldn’t have as many people.

GRANT: Were any of the shows going on, like that awesome magic show mom and dad saw a while ago?

MAK: No, he said they were all closed down. Hundreds or thousands of people in one spot is too risky.

GRANT: Well that doesn’t help. Dad said the number of people flying is way down too. From late March to mid-June of 2019, daily travelers were between 2 million and 2.8 million.

MAK: How many have been traveling this year with Corona? It has to be a lot less.

GRANT: It was. In April we saw several days around 90,000. VERY hard to believe. But, now in mid-June it’s picking up and on June 22, it was over 600,000.

MAK: Well, that is a little bit of good news. But, not back to normal, which means less money being spent on vacations and business travel. Now we’re seeing more new cases reported than ever.

GRANT: Yeah, I don’t think that will help. We’ve got a good idea of some companies that are being hit really hard in hospitality.

MAK: Yeah, let’s check in with Dad and figure out what happened to them due to Corona.

MAK/GRANT: Dad, who got beat up due to Corona??

DAD: Hey guys, what’s going on. Mak, you’re in my light can you move over?

MAK: What are you wearing dad? Is that your underwear? You do know you’re outside and people can see you.

GRANT: Dad, come on, that’s so small. People will see you out here on the deck. This is so embarrassing.

DAD: I just can’t wait to go on a vacation. And you know when I lived in Europe…

MAK/GRANT: They drank more wine, wore smaller swim suits and ate lots of cheese. WE KNOW!!

GRANT: But, we’re NOT in Europe dad!!

DAD: Ok, you’re right. But, I’m sick of staying home. I’m mentally preparing for our next vacation. I have my fruity drink-CHECK, working on my tan-CHECK and I have my travel books-CHECK.

MAK: Where are you planning on going? Are you taking us?

DAD: TBD. To Be Determined. Sometimes when I take you, I also take along all your fighting

GRANT: Ouch. But you do know we can carry your bags???

DAD: Thanks for offering, but you can also carry away my patience and carry away my money. I’m not sure that’s the relaxation I want. But, we’ll see.

MAK: So, what are you reading? What’s that book say? GALA-something.

DAD: Well, I’m looking at boobies right now? Doing a little research.

GRANT: Dad, did you seriously say what I thought you said?

DAD: Yes, I’m looking at the Galapagos islands. The boobies there are sooo cool.

MAK: Daaaadddd, should I dare ask what a booby is?

DAD: Sure, you’ll love the blue-footed booby, like me. It’s a seabird that my friend Mary told me about when she visited. But, there is also the red-footed and the Nazca booby.

MAK/GRANT: OOOOOHHHHHH.

DAD: Aren’t they beautiful? Look at their webbed feet and color!! They’re very popular. The blue footed and Nazca boobies nest along the ground, but the red-footed ones use the bushes.

GRANT: Is that a picture? Wow, the blue-footed ones look really cool with their piercing eyes. Those web feet are wicked and really stand out.

DAD: Nice one. I know. They do a little dance by lifting them up and down, and sway back and forth. It’s fun to watch.

MAK: Don’t the Galapagos have those old turtles too?

DAD: Yep. It was described as the “island of turtles”. The giant tortoise is the most famous inhabitant. They can live 150 years, and be almost 600 lbs. That’s the size of a motorcycle or a grand piano.

GRANT: Wow, that sounds awesome. Where are the islands located?

DAD: Well, they were formed from lava and still growing as some of the volcanoes are active with lava leaking out and cooling. The islands are off the west coast of Ecuador in the Pacific.

MAK: Ec-ua-dor sounds like a funny way of saying “E-QUA-TOR”. Isn’t that the line that divides the earth in half? Is Ecuador near the equator?

DAD: Excellent question Mak. Ecuador WAS named after the equator, which does divide the earth in 1/2. The country and the islands cross the line and are in both the Northern and Southern hemispheres.

GRANT: So parts are on both sides of the equator? Doesn’t that make the weather really good?

DAD: It averages 75 degrees all year round. And, unlike where we’ve lived, there is the same amount of light each day the entire year. It’s almost equally 12 hours of sunlight and 12 hours of darkness.

MAK: Sounds like a pretty amazing place. Well, I’m looking forward to my invitation to go with you.

DAD: So, did you want to talk about some businesses that got hit hard from Corona? We spoke about businesses who are doing well last week.

GRANT: Yes, let’s talk about businesses hit hard. Mak and I spoke about how there are a lot fewer people traveling each day. Maybe we could look at airlines first. They got slammed, right?

DAD: They did. I used to travel on American Airlines a lot for work. So, what do you think happened to them?

MAK: Well, American Airlines went from around $30 per share down to $10 and back up to $15.

DAD: So, it dropped 66% when everything dropped, then it went up 50%, but it’s still lower than when it started.

GRANT: Are you sure you did those calculations right?

DAD: Yep, because it’s the change compared to where you started. You start at $30 and drop $20 which means it went to $10. And, it jumped back up to $15.

MAK: OHHHHH. So in the first one, the calculation is 20 divided by 30. The next calc is 5 divided by the NEW share price of $10. Got it.

GRANT: So dad, it really depends on when you buy the stock. I can buy more shares when it’s cheaper.

DAD: Absolutely correct.

MAK: That was a lot of numbers, but it makes total sense. So, the more shares you can buy at a lower price, the more you can make when it goes up.

DAD: You got it, so when the stock goes down, it’s on sale. That could be a GREAT time to buy. We call that value investing. Waiting for the right opportunity to buy can be big.

MAK: That is soooo cool.

DAD: I agree. Math is soooo awesome!! And bigger returns are too!! You know who else was a big loser, I mean gainer?

GRANT: Are you talking about your bigger belly dad?

DAD: How did you know? I gained about 15 pounds during quarantine. That clearly doesn’t make me a winner. There are companies we’ll talk about who benefitted from people wanting to exercise.

MAK: Dad, there’s just more of you to hug!

DAD: Thank you. You know Disney is in hospitality too. Their stock was down as we know. They own a cruise line, but Carnival Cruise Lines the biggest. What do you think happened to them?

GRANT: I loved our Disney cruises, but this is bad for the industry. Before Corona hit, Carnival was around $50, and it went down to around $11 and it’s now around $16.

MAK: Sounds like a similar story, but cruise lines were hit harder. When you’re so close to other people on a boat, it’s tough to fight corona and less people want to go.

DAD: I agree. So, down a lot, then it went up a good amount, but it’s still 68% lower than when it started. That’s huge.

GRANT: Sounds like the expectation is that they may not recover for a while, right? Did they get money from the government like the airlines?

DAD: There is uncertainty about the future, for sure. And, no, they didn’t get any government money. Do you know why?

MAK: Didn’t we see most of them in florida? Isn’t that where the cruise lines are headquartered?

DAD: The major cruise lines ARE headquartered in Miami. But, they aren’t “legally” American. Royal Caribbean is actually registered in Liberia.

GRANT: Ok, so they look like an American company by having most of their operations in the US, but legally they are a Liberian company.

DAD: Yep, there is an old special rule that allows that to happen. If you look at a Royal Carribean boat, it won’t have an American flag, but a Liberian one.

MAK: That’s confusing. I know foreign companies, like BMW. They sell cars and it’s a German company. But, they’re based in Germany, right?

DAD: Yep. Do you know why companies may be based in a different country? It’s one of my favorite topics.

GRANT: It’s a trick. It has to be because of TAXES!!

DAD: You’re right. The cruise lines pay less taxes in Liberia, Panama, Bermuda and other places.

MAK: So, if they don’t pay many taxes to the US government, then the US government doesn’t want to support them.

GRANT: I’ll have to say that makes sense. If you didn’t pay in, it doesn’t sound like they want to pay out to help you.

DAD: Yep, you’re right. And, to be clear, they did pay taxes, just not like American registered companies.

MAK: So, if business is so bad, how are they getting by?

DAD: Remember how we talked about how a company gets money, called capital. They can do one of two things…

MAK/GRANT: Sell stock or Borrow money.

DAD: They did both. They’ve been losing a billion dollars a month. So, there is a lot of risk. They had to pay a really high interest rate, and sell stock really, really cheap. But, they raised billions.

GRANT: That doesn’t sound good. A lot more interest expense, and more investors. That’s like ordering a smaller pizza than normal, and having more people come to eat it.

DAD: Great point G. Less profits because of higher interest, and more investors sharing in them. How about we do one last company? I think you both know the name Marriott, right?

MAK: Yep, those are hotels. Super fun pools and we stayed in some really cool rooms before. Should we check their stock price?

GRANT: I got it dad. Looks like it was about $150 before Corona, dropped to 64, and is around 85. But, it actually dipped a second time in April. It went down to 59. So, I’m having a rough time.

DAD: Good catch G. As you can see, it really fell in mid-March and got hit again in April. It’s down 65 points or over 43% from before Corona.

MAK: So, people aren’t traveling, which means less people are using hotels.

DAD: Yep. Occupancy is down to around 20%, and it’s normally around 60%?

GRANT: What’s that word? “Occu Antsy”? What?????

DAD: Sorry. It’s occupancy. Which is from the word “occupy”. It pretty much means where you stay or live. We occupy this apartment.

MAK: Ok, so for a hotel that has 100 rooms, only 20 of them are currently being “lived in”, when it used to be 60?

DAD: Excellent. So, about ⅓ of what is normal. That’s a lot less, and probably hard to make money. Lots of people lost their jobs in hotels when Corona hit.

GRANT: So, the expectation for hotels is uncertain as well?

DAD: Right on point. Not sure when or how things will change. I think you’re both really getting this.

MAK: It is tough talking about the companies getting hit by Corona, I’m looking forward to talking about some companies doing well again.

GRANT: Me too. I feel really bad for them, and can’t wait until things are MUCH better.

DAD: Couldn’t agree more. Maybe next episode we can have another special guest. What do you say?

MAK/GRANT: Sounds great to me. BYE!!!

Ben’s 2 Cents

When we invest, we want to use our money on companies that we anticipate will grow. The value of a stock is about expectations of future performance. If Corona is going to affect an industry negatively for a period of time, the expectation is that it won’t be as profitable and the stock price will suffer.

Clearly, one of the hardest hit industries is hospitality. Airlines, cruise lines, hotels, restaurants and many others. As we spoke about today, there will be some big changes in how we handle things related to Corona. If there is a vaccination, it may not matter. But, there isn’t one now, and the future is a little uncertain at this time. In addition, people are reluctant to travel.

Currently, we’re seeing the most cases we’ve ever seen in the US. No matter if it’s due to more testing or not, it doesn’t matter. The market sees the uncertainty and the additional financial stress to the economy that many industries will face. Therefore, this situation doesn’t help.

Corona highlights how forces can significantly affect stock prices. The reactions are both sharp and swift. By understanding how these situations affect prices, you’ll become a more informed investor so you can make better decisions. We all believe things will get better, and our heart goes out to those who are hurt by this situation. Now, we’re not sure what the future has in store for us. But, we’re all hoping for the best.

Let’s look at some more companies that are doing well in our next episode, and possibly bring in a special guest. As always, THANK YOU for being here. We’re so thankful for your support. Don’t forget to subscribe, like and comment. Until our next podcast, stay safe and healthy. We’ll see you next week for more Money with Mak & G. BYE!!!!!