Few things are more unpredictable than biology. We found that out on Monday when Pfizer had announced it had a 90% effective COVID-19 vaccine on its hands. Although the vaccine is still in the early part of its trials, the results are nothing short of encouraging. And it gives this pandemic-plagued market a tonne of hope, just over a week before it seemed like stocks could not catch a single break.
It’s been a sweet November for stocks thus far. U.S. election jitters were unwarranted, and there’s a vaccine to be optimistic about. We could witness a continuation of what market watchers witnessed Monday: a profound rotation back into COVID-hit plays.
It’s time to bring your barbell portfolio back into balance
I’ve been a strong advocate of the COVID-19 barbell portfolio that balances the pandemic-resilient names with the ones that have been feeling the greatest impact from the crisis. Monday, I believe, was just a sample of why it’s vital to keep your portfolio balanced with both risk-on and risk-off plays. If you went all-in on COVID-resilient stocks or tech stocks that were beneficiaries of the pandemic, you lost big.
This piece will have a closer look at three COVID-hit stocks that investors may wish to rotate into if they’ve been neglecting the risk-on portion of their portfolios. Going into 2021, it’s not just vaccine hopes that could propel the market, but advancements in rapid-test kits could also give overly beaten-up value names a huge lift. With U.S. election jitters and Blue Wave woes now in the rear-view mirror, a generous U.S. fiscal stimulus package could serve as rally fuel for the next wave until we learn more about Pfizer’s vaccine breakthrough and the many questions that remain unanswered.
Without further ado, consider Restaurant Brands International (TSX:QSR)(NYSE:QSR) and Manulife Financial (TSX:MFC)(NYSE:MFC), a restaurant giant and a life insurer that have taken a beating this year that are overdue for a bounce, as the latest vaccine breakthrough sparks a continued rotation out of the year’s biggest winners to its biggest losers.
Restaurant Brands International
I’ve been bullish on shares of Restaurant Brands, the firm behind Tim Hortons, Burger King, and Popeyes, for most of the year. Shares imploded like a paper bag back in February and March, only to come rocketing back. Today, Restaurant Brands soared nearly 7% in a day on news of the Pfizer vaccine. I think QSR stock has much more room to run, as the stock remains a country mile (28%) below its all-time highs. And shares have yet to recover the ground lost in October, a time when Restaurant Brands pulled the curtain on quarterly results that underwhelmed the Street.
With modernization efforts underway and a potential return to normalcy as soon as mid-2021, I think Restaurant Brands could be headed back to $100 as soon as year’s end, as investors look to beat the herd back into the battered COVID-hit stocks before they have a chance to fully correct to the upside towards their true value.
Top multinational life insurer Manulife (TSX:MFC)(NYSE:MFC) rocketed nearly 11% on Monday. Insurance products are not a hot seller in times of a recession or a worsening pandemic. With renewed hopes that things will be back to normal at some point next year, I think we’ll witness more days like the one we had on Monday, as investors make a return to deep-value stock that has been tossed out over profound coronavirus headwinds that may soon show signs of abating.
Manulife is an undervalued stock at a more than 25% discount to book value. With promising longer-term Asian growth prospects, Manulife a compelling option for those willing to look beyond this pandemic for earnings growth.
While a lower rate environment isn’t ideal for Manulife, I think the stock is capable of returning to its 2019 high of around $27 over the next 18 months. The perfect stage has been set for an ailing name like Manulife. And if you’re ready to pick at the value to be had in the COVID wreckage before it’s gone alongside this pandemic, MFC ought to be near the top of your shopping list while its dividend still yields over 5.3%.
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Fool contributor Joey Frenette owns shares of RESTAURANT BRANDS INTERNATIONAL INC. The Motley Fool recommends RESTAURANT BRANDS INTERNATIONAL INC.