COVID-19: How Likely Are Further Lockdowns in 2020?

Air Canada (TSX:AC) may not be a wisest bet for Canadian retail investors if more COVID-19 lockdowns are in the cards later in the year.

| More on:
Handwriting text writing Are You Ready For Tomorrow question. Concept meaning Preparation to the future Motivation Stand blackboard with white words behind blurry blue paper lobs woody floor.

Image source: Getty Images

COVID-19 is a socio-economic disaster that’s decimated many sectors of the global economy. As Canada looks to reopen for business from the nearly three months of unprecedented lockdowns, there’s no telling what the response will be.

Many provinces are reopening in phases for the summer. As exciting as this return to normalcy is, investors must realize that there’s a risk that such re-openings could be rolled back should a second outbreak, such as the one going on in Texas, be in the cards.

The insidious COVID-19 is an unpredictable beast, and given that the likelihood of more bad news is high, retail investors should seek to limit their exposure to high-risk, high-upside names like Air Canada (TSX:AC), especially with a sizeable chunk of their Tax-Free Savings Account (TFSA) funds.

The smart money doesn’t look nearly as fearless as the average retail investor

Many big-league institutional investors are taking it easy with the “all-or-nothing” spec bets, including the likes of “bankrupt bargains” like Hertz that retail investors have been piling into of late.

Most of the smart money has opted to go with more resilient, albeit pricier stocks amid great uncertainties. Unless you’ve got conviction in a high-upside spec bet like Air Canada, it may be a wise idea for you to invest more cautiously given that we could be exiting one of what could be many government-mandated lockdowns.

Don’t go all-in on the V-shaped recovery from the COVID-19 crisis just yet

If you’re still optimistic about a timely arrival of a vaccine by year-end, it makes sense to pick your spots in the most at-risk names out there, as long as you’ve got defensive positions that can have your back should no vaccine land and we’re due for further economy-crippling lockdowns to bend another curve of infections.

That’s why the “barbell” portfolio makes a tonne of sense for retail investors at a time like this. If you pick your spots carefully, you can position yourself to crush the markets, regardless of whether or not we’re due for further lockdowns.

While the shot at potential multi-bagger gains from the likes of an airline stock is enticing for new investors, few seem to be thinking about a worst-case scenario, when a handful of the major commercial airlines go belly up amid the crisis.

Heck, even Boeing CEO David Calhoun has muted expectations for the recovery of the air travel industry, noting that it could take years to return to pre-pandemic levels and also acknowledging that a U.S. airline could be at risk of going bankrupt by year-end.

So, are more COVID-19 lockdowns coming over the next year?

Nobody knows. But investors should prepare for such a disastrous scenario with a portion of their portfolio so it’s not taken to the cleaners should the most at-risk COVID-19 stocks crumble like a paper bag in the face of further coronavirus-induced lockdowns.

On its own, Air Canada stock may be a dangerous bet, but when put alongside a defensive dividend stock that’s resilient in the face of the pandemic, the airline stock may be a compelling way to tilt the risk/reward trade-off that much more in your favour.

The “barbell” approach will help upside-seeking investors roll with the punches as they come along over the coming months.

Stay hungry. Stay Foolish.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette owns shares of Boeing.

More on Stocks for Beginners

Two seniors float in a pool.
Stocks for Beginners

2 Smart Stocks to Buy in 2023 That Could Help You Retire Richer

When it comes to investing in smart stocks on the TSX today, these two are some of the best that…

Read more »

exchange-traded funds
Stocks for Beginners

ETFs: How to Invest $1,000 in March 2023

Here's how I would lazily invest with $1,000.

Read more »

Stocks for Beginners

How TFSA and RRSP Investors Can Turn $20,000 Into $580,000 in 20 Years

For long-term growth, a low-cost S&P 500 index ETF might be all you need.

Read more »

Illustration of bull and bear
Dividend Stocks

TFSA Investors: 2 TSX Stocks Set to Thrive in the Next Bull Market

Canadian Tire and another dividend growth play that's getting way too cheap to ignore amid the market's turbulence.

Read more »

edit Close-up Of A Piggybank With Eyeglasses And Calculator On Desk
Stocks for Beginners

Investors: How Do Canadian Bank Stocks Stack Up to U.S. Banks?

Here's why Canadian bank stocks could outperform their US peers.

Read more »

stock market
Stocks for Beginners

A Bull Market Is Eventually Coming: 1 Stock to Buy Now and Hold Forever

Investors may be uncomfortable in market downturns, but try to stay the course and focus on the long term to…

Read more »

Dividend Stocks

5 Steps to Making $500 in Monthly Passive Income in 2023

Generating monthly passive income isn't as hard as it sounds. Here are 5 steps to start making $500 every month.

Read more »

Various Canadian dollars in gray pants pocket
Stocks for Beginners

3 Passive-Income Ideas to Build Long-Term Wealth

Set up to earn multiple passive-income streams to complement your active income. Dividend stocks are an excellent way to start.

Read more »