Send me real-time posts from this site at my email
Motley Fool

Why Coca-Cola, Chefs' Warehouse, and Middleby Stocks All Popped on Today's Vaccine News

What happened

Pfizer announced Monday that its vaccine candidate BNT162b2 "was found to be more than 90% effective in preventing COVID-19," the disease that caused a pandemic, spawned a recession, and destroyed America's restaurant sector. Investors hearing the news Monday responded quite logically -- by buying up shares of companies that are expected to profit from people going out to eat again.

How widespread is the enthusiasm? Pretty darn wide. In addition to restaurant stocks per se, we're seeing shares of companies like Coca-Cola (NYSE: KO) up 6.2% in 12:15 p.m. EST trading. At the same time, Middleby (NASDAQ: MIDD) stock was up a similar 6.1%, and lesser-known The Chefs' Warehouse (NASDAQ: CHEF) was racing ahead 29.6%.

Image source: Getty Images.

So what

Why these stocks in particular? Allow me to explain, beginning with Coca-Cola.

COVID-19 devastated Coke stock, which even after recovering from its March lows, and even after today's bump, is still trading 12% below its highs of the year. The reason, as Coke explained some months ago in the wake of its Q1 earnings results, is that this company has historically made about 50% of its sales to "out-of-home" customers -- restaurants that buy Coke and serve it to folks eating out. When COVID-19 shutdowns were in full swing, surveys suggested that as many as 80% of restaurateurs were at least considering closing up shop permanently because they couldn't operate at a profit with the reduced customer traffic caused by the pandemic.

Now, losing 80% of 50% of its business would imply a 40% decline in Coke's sales if the world never recovered from COVID-19. The good news is that didn't prove the case. Total sales were actually down only 9% last quarter, for example. Still, a vaccine that makes it safe enough for people to resume eating out should mean that even that sales decline could prove temporary and be reversed after the vaccine has been rolled out and most people have been inoculated.

Now what

That's why Pfizer's good news is especially good news for Coke. Now let's see why it's also good news for Middleby and Chefs' Warehouse. Even more than Coca-Cola, both of these companies cater especially to the restaurant sector: Middleby by selling major appliances to commercial kitchens, and Chefs' Warehouse by distributing specialty foods.

Like Coke, both Middleby and Chefs' Warehouse have suffered declines during the pandemic. Last quarter, for example, Middleby's sales declined 12% in comparison with last year, and Chefs' Warehouse dropped 36%. But, like Coke, both of those sales declines can be expected to reverse as progress is made in fighting the pandemic.

Pfizer's news today promises not just progress, but progress in the near term, as approval of the vaccine could happen as early as late this month. This, in a nutshell, is why all three stocks are rising today.

10 stocks we like better than Coca-Cola
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Coca-Cola wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of October 20, 2020

Selim Bassoul, former CEO, chairman, and president of Middleby, serves as Chief Innovator at The Motley Fool. Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Middleby. The Motley Fool has a disclosure policy.


Popular posts

Welcome! Is it your First time here?

What are you looking for? Select your points of interest to improve your first-time experience:

Apply & Continue