30/09/2020

There’s little sstopping coronavirus from infecting the markets. American Airlines, Las Vegas Sands and Tesla present shorting opportunities.

  • Coronavirus could soon be declared a pandemic, scientists have warned.
  • Share price of companies with substantial exposure to China could fall.
  • American Airlines, Las Vegas Sand, and Tesla are the three stocks that present an excellent shorting opportunity.

The Chinese government has been resorting to some authoritarian techniques to curb the panic around coronavirus.
After censoring reports from reputed outlets, the Communist Party of China (CPC) seems to have gotten more desperate. Now, they are checking cell phones to make sure no videos are being taken.
The official death toll has risen to 427 but several unofficial reports suggest that the death count is much higher than what the CPC is reporting. Its no surprise that coronavirus is expected to be declared a pandemic.
Ripples of fear have turned into tsunamis as crematoriums are being built. And some crematoriums workers are saying that they are receiving as many as 20 bodies a day. Of course, even these numbers could be under-reported.
Coronavirus is still spreading at a rapid pace, and theres no way the financial markets will stay immune. When the worlds second-largest economy comes to a standstill, there could be repercussions.
In my opinion, American Airlines (NASDAQ:AAL), Las Vegas Sands (NYSE:LVS) and Tesla (NASDAQ:TSLA) have the most to lose from the coronavirus panic and represent a potential shorting opportunity.
Coronavirus Could Hit all Airlines
A host of airline stocks have lost a lot of value lately because of the coronavirus epidemic. Over the last month, nearly all major carriers have lost over 10% in value.
American Airlines has been the worst performer. | Source: YCharts
Topping the list was American Airlines with a staggering 13.3% decline. When you consider other issues surrounding the company, it looks like the worse is yet to come. The company is vulnerable in the face of unexpected shocks, like coronavirus, because of the high debt it carries.
American Airlines debt makes it vulnerable to external shocks. | Source: Yahoo! Finance
The carrier has also been plagued with mass cancellations. Due to the grounding of Boeing 737 MAX, American Airlines has canceled roughly 115 flights a day.
It even had to shut down a flight route because of aircraft shortage. The 737 MAX is expected to remain grounded for the foreseeable future so the problems will persist.
American Airlines also holds a 2.76% stake in China Southern Airlines. Now that China Southern Airlines is dropping all major international flights, things could get worse.
Casinos will See Less Traffic due to Coronavirus
The airline sector isnt the only one facing potential losses. The casinos of Macau have been suffering as well.
Macau casinos rely on visitors from the Chinese mainland. Local authorities have now banned them, which means theyll lose almost 90% of the total visitor count.
Las Vegas Sands, one of the biggest casino names in Macau, had an unfavorable 2019. Thanks to coronavirus, 2020 could be a bigger disaster.
Source: YCHARTS
Despite the Macau government shutting down casinos for 15 days, Las Vegas Sands jumped almost 2% Tuesday and is up another 1% after-hours. But the future looks grim and stock price will soon catch up with the reality.
Teslas Chinese Business could take a Hit
Tesla stock has been on a gravity-defying run and is up over 100% in 2020 alone. But a parabolic rally can only last for so long. And when a parabolic run is breached, the downfall is often faster than the rise.
Teslas Chinese prospects have been the dominant force behind the rally. Its Chinese business is already taking a hit because of coronavirus. CFO Zach Kirkhorn recently said production at the Shanghai Gigafactory would be delayed by less than two weeks.
Since the CPC has been unable to contain the outbreak, its highly likely that the shutdown will get extended indefinitely. While Kirkhorn said the shutdown will only slightly affect Teslas profitability, itll get much worse if its extended.
Teslas stock is priced for perfection. Any slight misstep can cause a colossal drop overnight. The market has seemed to brush aside factory-shutdown for now, but it wont be able to ignore an underwhelming earnings report. Consequently, shorting Tesla via put options expiring in December 2020 looks like an appealing trade at this time.
Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com. The above should not be considered trading advice from CCN.com.
This article was edited by Sam Bourgi.
Last modified: February 5, 2020 12:03 AM UTC