Encouraging vaccine news has Wall Street searching for stocks to play the rebound—scouring the market for names that have been beaten up amid the pandemic but poised to boom once things return to normal.
Katie Koch, cohead of fundamental equity at Goldman Sachs Asset Management, is feeling bullish on trades that bank on a surge in pent-up demand among an increasingly powerful cohort of spenders: Millennials.
Koch calls them the “world’s most powerful consumer,” and believes the group will become “increasingly dominant” in the marketplace over the next 10 years. But these millennials aren’t all materially obsessed, she argues.
“This is a generation of people that value experiences over things,” Koch tells Fortune. Those experiences, namely concerts and travel, have been “off limits” this year, but she believes “not only is it going to go back to normal, it may actually supersede that for some period of time because of how much pent up demand there is” once consumers are given the green light.
That would be welcome news for companies in those beleaguered live events industries whose balance sheets have been bloodied this year. Those names have “tremendous upside” to Koch because “very simply, they’re tied to a secular growth story we don’t think will go away, which is that people want to have fun and experiences, especially the millennials, and that they’ll go back to those behaviors,” she says.
Yet despite the encouraging developments for prospective vaccines like those from Pfizer and BioNTech and Moderna, Koch warns timing this sector is tricky: “We don’t know exactly when it’s going to normalize,” she says. That’s why she emphasizes investors need to be selective on these “experience-based companies” because “they need the balance sheet fortitude really to get through another 12 months of no revenue.”
One stock that fits the bill? Live Nation, a company specializing in concerts and live events that owns Ticketmaster. (Live Nation also made Fortune‘s 2021 Investor Guide.) Revenues are down nearly 60% in the last 12 months, and the analyst consensus is that earnings could remain depressed in 2021. But Koch (along with Live Nation’s management) note they have the necessary “balance sheet strength to make it through a continued, protracted shutdown,” yet have major upside potential when things return to normal. One bright spot: Even amid the pandemic, over 80% of Live Nation’s customers decided to hold on their tickets instead of getting a refund, which Koch believes shows “people are committed to it.”
But it’s certainly not just U.S. consumers that are excited to get back to events with their friends. Koch also likes CTS Eventim based in Germany, a “leading player” in live events and ticketing that has “very dominant market share in Germany as well as some other European countries” including Austria, Switzerland, and Italy. Like Live Nation, CTS was battered in 2020 as live events shuttered across Europe, with revenues down over 57% in the past 12 months. But Koch argues the business is “well capitalized, leading us to believe they could survive these headwinds for a few years,” while she expects CTS will “recover quickly” once events come back, hopefully in 2021 (analyst consensus is that earnings should improve in 2021). With the stock off roughly 11% from its 52-week high, there’s plenty of room for upside.
But concert-goers will also need to travel and stay in hotels. Koch points to U.K.-based hotel franchiser Intercontinental Hotel Group and Vinci, a French infrastructure and construction company with a focus on toll roads and airports, as a couple more names to look at. After all, if you can’t go to live events right now, you might at least get a thrill watching your stock portfolio gyrate.
All stock prices calculated as of Nov. 16, 2020.