Rotation from COVID-Benefited to COVID-Hurt stocks is on the way,
how to participate in this Recovery Rally?

Nov 25, 2020

COVID-19 had profound effects on various businesses. Some businesses got a significant boost (ex: ZM, AMZN, SHOP, PTON etc) and some got hurt significantly (ex: JETS, AMC, NCLH etc)

The hope of multiple vaccines on the horizon is encouraging for COVID-Hurt stocks. Therefore it makes sense to rotate some of the positions from COVID-Benefited to COVID-Hurt stocks. The COVID-Hurt stocks would benefit as we shift more to the real world from the virtual world and as the “contact” economy opens up.

Unfortunately, this decision is not a simple broad brushstroke as an ETF. We need to examine individual stocks closely to determine its viability as a participant of the recovery rally.

With this in mind, here are few tips to consider:

What to rotate out of?

COVID has benefited some businesses permanently and some temporarily. We want to get out of those that have enjoyed the ephemeral benefit.

What to rotate into?

COVID has damaged some businesses permanently and some temporarily. We want to get into those which are damaged temporarily.

• In these, we want to analyze their cash-flow to make sure they can weather the storm with a certain margin of safety

• Secondly, we want to factor in any debt they may have raised and recalibrate their potential stock price and timeframe for the recovery.

• Stick with high quality companies, quality is paramount at this time as management may need to maneuver difficult times.