The Great Covid Migration Continues to Boost These Stocks

Chances are you’ve seen it in your own neighborhood, or heard about it from friends and family.

College students moving home as universities switched to remote classes. Gig workers and restaurant employees leaving city centers as lockdowns shuttered their employers. Folks afraid of catching Covid-19 are relocating out to the suburbs, where avoiding others is easier. Those are just three examples of one great migration that’s played out in America this year.

Far from being random, there are clear patterns in who’s moving where. And the consequences for life in America will play out for years to come, long after Covid-19 goes away. And as people move, so do stock prices.

Here are a few that stand to get a big lift from the Covid-19 exodus…

Americans Haven’t Moved This Much in Decades

According to the highly respected Pew Research Center, by June 22% of Americans either moved themselves because of Covid-19 or knew someone who did.

That’s almost a fifth of the population. In the postwar decades, it was normal for huge amounts of Americans to move in any given year. The job market was booming, housing was cheap, and people felt safe in moving to get a better job and life.

As late as 1985, 20% of Americans had changed their address in the last year. But by 2018, that number was down to just 10%. So this summer’s “Covid migration” is extraordinary. And this year, the reasons people had for moving were very different.

According to Pew, the most common reason people had for moving was simply to get away from Covid-19 hotspots. A whopping 28% of people moved to reduce the risk of catching the virus.

Almost as many, 23%, moved because their college campus closed, and 20% moved because they wanted to be with family in these trying times.

Only 18% moved because they had lost their job or for other financial reasons. Maybe most importantly, 18-29-year olds made up more than half of the people who moved.

That’s crucial, because once young people move to another place, they may well settle down there for the long haul and never come back. That’s going to have huge economic ripple effects both on where they moved to and where they came from.

Data from the U.S. Postal Service, gathered between February and July, shows that people mostly left big cities such as New York, Chicago, San Francisco, and so on. Manhattan alone lost over 110,000 residents over that period.

Meanwhile, the cities and towns that gained most new residents are mid-sized towns on the outskirts of large metropolitan areas. Frisco, Texas, for example, is on the edge of the Dallas-Fort Worth metro area, where housing sales are through the roof. Greenwich, CT just reported its third quarter homes sales – they were the highest on record.

Now, it’s important not to blow things out of proportion. The vast majority of Americans haven’t moved, and many who did mostly plan to come back. According to the Pew data, only 3% of people actually moved in June because of Covid-19. The remaining 19% knew of someone who did. And the USPS’ data shows that applications for permanent address changes stayed flat this summer, while temporary address changes spiked.

Still, with Covid-19 dragging on, work from home becoming a permanent fixture in many people’s lives, furloughed employees permanently losing their city jobs, and house sales outside cities on the rise, many of these temporary moves are quickly becoming permanent.

As you can imagine, this Covid-19 migration has and will have huge effects on businesses. Life in Manhattan looks very different from life even just 50 miles north. Grocery stores are different, public transportation is harder to come by, and owning your house becomes more common than renting.

This is creating a generational growth in demand for some products, and a drop for others.

The Winners of the Covid Migration

The most direct winners of people moving out of cities, where they often rent, to the suburbs and country, where more people own their homes, are companies that build homes.

As you can see in this chart of how many new houses have begun to be built over the last five years, homebuilders have recovered very strongly after the initial coronavirus dip:

As recently reported, the industry’s confidence going forward is at record levels, and the main hurdles they face right now is the rising price of lumber and a lack of lots to build houses on.

Homebuilders have been doing well since the March lows – and as this percent change chart shows, they’ve been doing well since the beginning of the year, despite the Covid-19 drawdown:

Importantly, these six large homebuilders have all outperformed the S&P 500:

  • PulteGroup Inc. (PHM)
  • Toll Brothers Inc. (TOL)
  • Lennar Corp. (LEN)
  • D.R. Horton Inc. (DHI)
  • NVR Inc. (NVR)
  • Meritage Home Corp (MTH)

I see this trend continuing into the New Year and beyond, putting homebuilders on my “buy on pullbacks” candidate list.

Of course, not everyone who moves builds a new house. Existing home sales have recovered too, as this chart from the Fed shows:

Here, the winners are the stores people will go to when they remodel their new homes. Chief among them are the two large home improvement chains: Home Depot Inc. (HD) and Lowe’s Cos. Inc. (LOW).

Both have more than recovered since the March lows, and benefit not only from the Covid migration, but also from people who suddenly work from home wanting to improve their home offices. But a trend I’m seeing on the ground is something HD and LOW can’t help with – lumber supply. I have friends in construction who just can’t get enough building materials. That’s why I think Trex, Co. (TREX) is poised to outperform into the new year:

Last but not least, a key winner in the Covid-19 migration are car makers and car sellers. After all, cities such as San Francisco and Chicago have extensive public transportation that makes getting around without a car relatively easy.

Not to mention Manhattan, where cars are the least convenient and by far the slowest means of getting around.

But go just a few miles outside America’s big cities, and you’re in car country. So the folks moving out of the cities are going to need to get cars. For many young Americans, it may even be their first ones.

Car companies such as Ford Motor Co. (F), General Motors Co. (GM), and Fiat Chrysler Automobiles NV (FCA) all stand to gain, but they’re less of a focus here.

They’ve all taken a hit thanks to lower demand from car rental companies this summer, not necessarily from fewer consumer purchases. But with the Covid-19 migration, long-term demand will grow.

Not everyone can afford a new car, of course, so used-car sales will continue to boom. Here, companies such as CarMax Inc. (KMX) and Carvana Co. (CVNA) will benefit. Carvana stock is already up seven times higher than its March lows, as the online-only used-car company needed little adjusting to reassure buyers worried about Covid-19. I like putting some speculative cash here on deep dips in the volatile stock.

Two other suburbanization stocks worth noting are Lemonade, Inc (LMND) and Zillow Group (Z). Both are disrupters in their space – Z in real estate sales, and LMND in property insurance. Z has been on tear from the Covid-19 lows and may be priced to perfection here at 5x its March lows. LMND, the recent IPO from this summer, has failed to gain much pricing traction since its early stock price explosion and retreat. But a strong tech presence with the key under 35 demographic (70% of their customer base) makes this an interesting long-term speculative play at the bottom of its price range in the ($45-$50 per share).

Great trading, stay safe out there, and God bless you,

D. R.

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