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Banks, Real Estate, and Travel: Where Are The Best Opportunities Now?

The S&P 500 is up by nearly 15% in 2020, but some sectors haven't performed quite so well. Banks, real estate, and travel are three areas that have had a particularly rough year.

However, with the release of positive vaccine data, now could be an excellent time to shop for long-term investments at a discount. In this Nov. 25 Fool Live video clip, Fool.com contributors Matt Frankel, CFP, and Brian Feroldi share their thoughts on these three industries and some of their favorite companies to thrive in a post-pandemic world, as well as some to avoid.

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Matthew Frankel: On the other side, there's a baseball stadium, but the lighting wouldn't be right. If I turned it around, there's actually a baseball field right on the other side of this. Anyway, so over the past couple of weeks, there's been a theme. Every Monday we get some good news about COVID vaccine. If you look back to Monday the 9th, Pfizer (NYSE: PFE) released its vaccine data, the following Monday, the 16th, Moderna (NASDAQ: MRNA) release theirs, and just a few days ago, we heard from AstraZeneca (NASDAQ: AZN) about how their vaccine is doing. The lesson here might be to just buy the stock market on Mondays, but we're seeing that this vaccine data was much better than expected and it's really led to a shift in the stock market. We've seen a lot of the reopening the stay-at-home stocks rather like Zoom (NASDAQ: ZM) and Teladoc (NYSE: TDOC) have really taken a downward turn in the past few weeks. Reopening stocks, particularly in banks, real estate, and travel really explode. So we're going to talk about all three of those. I'm going to start off just with banks just because they are actually the least high-performing of the three that we're going to talk about. Just look at some of these numbers since Pfizer announced their vaccine data, Wells Fargo's (NYSE: WFC) up by 30 percent, Bank of America (NYSE: BAC) is up by 28 percent. So these are some pretty big moves in the past couple of weeks. With banks, the simple explanation is that high unemployment has the potential to be devastating for banks. High unemployment could lead to people not being able to pay their bills, which leads to low losses for banks. Not only that, but right now the interest rates are at record lows, if anyone has refinanced their mortgage, you know that. Not exactly a great profit environment for a business who profits off loaning people money at interest. So banks have been getting hammered, a lot of them are still down for the COVID pandemic. But it's really been a great few weeks to be a bank investor. You've seen all the commercial focus banks like Wells Fargo have been the big outperformers, whereas the banks that have investment banking divisions have held up really well during the pandemic, but haven't seen the explosive moves we've seen over the past few weeks. I'm going to have Brian talk about some of the travel stocks because unlike banks, travel stocks it's very obvious why they react positively to the vaccine. But just to name a few, we're seeing cruise lines jump up. Carnival (NYSE: CCL) is up 48 percent in the past couple of weeks. American Airlines (NASDAQ: AAL) is up 30 percent, Southwest (NYSE: LUV) is up 20 percent. Casino stocks, MGM (NYSE: MGM) is up 27 percent. So my big question to Brian is first of all, what is your take on this? Second of all, what do you think about this move in, say, especially cruise line stocks? We're not going to see any sailings for a while.

Brian Feroldi: Yeah, it's interesting how quickly some of these stocks have reacted to the potential of things getting back to normal. Not necessarily that things have gotten back to normal, it's just the potential for them to get back to normal. I mean, I personally wasn't a big fan of the cruise industry prior to COVID-19 and I'm really not a fan of the cruise industry or airlines post COVID-19, especially right now given that these companies have bounced back so sharply. I think you could have made a counter argument that wow, these things are so cheap, they're going to survive. Today's valuations are ridiculous, given that they've bounced back so strongly. I don't think that same argument could be made given where they are. Folks following along, we are putting the tickers into the chat as we go. I know that we're going to get some questions about that.

Matthew Frankel: We're trying to at least. I know I just rambled off a bunch of tickers in that less little monologs. Thank you Brian for keeping up with that. So the travel stocks, I agree. In this pandemic, I've focused my investing decisions on two main philosophies. One, science will figure this out, which we're starting to see that it's definitely going to be the case. Number 2, quality matters more than ever. This is why I focused on banks like Bank of America instead of travel stocks like Carnival or American Airlines. Because like you said, I don't think they were that quality of businesses before the pandemic, especially the airlines which had literally no cash in reserves when this all happened. Remember that was a big controversy that they had spent 95 percent of their profits on buybacks instead of setting anything aside for a rainy day.

Brian Feroldi: Wasn't it the United (NASDAQ: UAL) CEO that said, "Airlines will never lose money again." Three years ago? If that's your mindset buying back your stock makes sense.

Matthew Frankel: Right. If that's guaranteed. It would also be nice to know what yesterday's lotteries numbers were and things like that. We don't always have that kind of crystal ball that the airline industry seem to think they had. So out of the two, I would definitely say banks are my favorite. Just because they're more quality businesses.

Brian Feroldi has no position in any of the stocks mentioned. Matthew Frankel, CFP owns shares of Bank of America and Wells Fargo and has the following options: short January 2021 $23 puts on Bank of America. The Motley Fool owns shares of and recommends Teladoc Health and Zoom Video Communications. The Motley Fool recommends Carnival and Southwest Airlines. The Motley Fool has a disclosure policy.


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