Premiums and discounts are fascinating for investors. Nine months ago, you couldn't give away a huge house in most suburban neighborhoods outside major U.S. cities. Now, those same houses sell at a huge premium to their 2019 prices, and penthouses on the 60th floor in Midtown Manhattan have slipped to a steep discount from their pre-Covid level.
The same pricing mechanisms usually applies to concert tickets, sporting events, and hotel rooms, but whenever we encounter severe natural or man-made disruptions, we discard past premium and discount rules. For example, once fracking became a feasible technology to expand oil output, the underlying commodity price began a transition from scarcity to surplus, eventually driving down the price of the commodity, the public shares of its producers, local housing that had run up in price, and the wages offered to workers at fracking wells.
So, what about the premiums and discounts arising from Covid-19? We have witnessed the extraordinary surge in business and stock price of companies undeterred or aided by a world of remote living and working, as well as, those focused on combatting the virus. Among the many Covid-premium stocks are Amazon, Apple, Facebook, Zoom, Paypal, Moderna, Teladoc, Home Depot, Target, Lululemon, and Chipotle.
On the flip side are the sectors such as airlines and hotels with limited ability to deliver their services remotely or without too-close human interaction. The Covid-discount weighs heavily on the sales and stock prices of Carnival, AMC, Delta, Wynn Resorts and Nordstrom, among others, who are part of the cohort of businesses that will not recover until our economy and society can truly reopen.
