National Post (National Edition)
A Canadian investor's guide to the election
Have you ever bought a stock, only to see it go down immediately after you have bought it?
Sure, you have. We have all been there. Sometimes, like trying to pick the best-moving lane in a traffic jam, and failing miserably, it seems the world is simply against you.
While most professional investors would be loath to admit it, luck sometimes plays a very important role in investing. Sometimes, you will buy a stock in a company that, days later, gets taken over at a nice premium. Other times, you will buy just hours before a short report is released on a company, and you will lose 20 per cent in a matter of hours on a stock you thought was pretty solid.
This year, of course, millions of investors bought in January, February and early March, only to see a never-before closure of the entire world due to the COVID-19 pandemic mere weeks after their purchases. Events such as these serve to highlight why one should never really try to time the market. Whether one calls them `random events', `good luck' or `bad luck' there is always something that is going to come along that changes everything. It is like “pre-guessing” fate: it can't be done.
Let's look at five instances in which shareholders/companies either got really lucky, or really unlucky, during this crazy year:
LUCKY: WestJet Airlines shareholders
WestJet shareholders accepted a $34 per share takeover offer from Onex (ONEX on TSX) last year, and the deal closed on Dec. 16, 2019. The takeover premium on the initial announcement was 63 per cent. Onex thought it was getting a deal, nonetheless, with visions of global expansion in its executives' heads. Less than three months later, the airline business essentially evaporated with the pandemic. Westjet's main competitor, Air Canada (AC on TSX) has seen its stock drop 69 per cent in 2020. Onex, likely with a severe case of buyer's remorse, is down 30 per cent this year. WestJet has cancelled flights and laid off a lot of staff. But WestJet shareholders simply counted their cash and watched the airline industry implosion from the sidelines.
UNLUCKY: Transat A.T. shareholders
Sticking with the airlines, nearly the exact opposite occurred with Transat A.T. Inc. (TRZ on TSX) shareholders. Air Canada first bid for Transat in May, 2019, at $13 per share. Then, in August, Air Canada raised its offer to $18 per share. But regulators dragged their feet on approving the deal, and then the pandemic hit. Transat shares plunged along with other airlines, despite both companies stating that the deal was still going to proceed. But earlier this month the two agreed on a new price for the takeover: $5 per share, 72 per cent below the last offering price. Had this deal closed earlier, Air Canada would have been the unlucky party. But instead, it was Transat shareholders. Considering Transat stock was $41 a share in 2007, it's very likely no shareholder is happy with this outcome.
UNLUCKY: Cineplex shareholders
Still with takeovers, Cineplex shareholders are next in the unlucky category. Cineplex (CGX on TSX) agreed to a $34 per share takeover by Cineworld Group PLC in December. The announced premium was 35 per cent. Cineplex shares were above $50 in 2017, so there might not have been extreme rejoicing on the deal, but it was a good premium, and all cash, so not so bad as far as takeovers go. But of course, a few months after the deal everything changed. The pandemic and lockdowns were not good for most businesses, but for a movie theatre the lockdown was a disaster. Two hundred customers sitting in an enclosed room laughing, or screaming, hard, during a pandemic? We don't think so. Cineplex shares hung on for a while, as both parties insisted they were still committed to the deal. But on June 12 it all fell apart, and the deal was scuttled. Cineplex shares are now $5, 85 per cent below the takeover price. The dividend has been discontinued, and many are questioning its survivability, with it having a fairly hefty debt load. Even with some theatre reopenings, many studios have delayed movie releases, adding further to shareholder woes.
LUCKY: Zoom Video Communications and Peloton Interactive shareholders
Zoom Video Communications (ZM on Nasdaq) and Peloton Interactive (PTON on Nasdaq). Take your pick, these two recent IPOs have to be some of the luckiest companies around.
First, Zoom (ZM on Nasdaq). Few had even heard of this company when it went public last year at US$36 per share. It had interesting technology, but many just assumed it was not much more than FaceTime for businesses. But not very long after its IPO, pretty much everyone in the world had heard of the company, used its video conferencing technology, and found it part of their everyday business life. Because of the pandemic, Zoom more or less got the entire world as new customers, pretty much overnight. Lucky shareholders: Zoom is at about US$485, and peaked in mid-October at US$588. The stock is up 629 per cent this year alone.
Peloton is similar: It went public at US$29 in September of last year. In the first days of the pandemic, it dropped to US$17. But then, gyms closed around the world, and fitness buffs needed something to spend their money on. A $3,000 bike in your basement suddenly sounded like a good idea for locked-down gym members. Sales exploded, delivery times spiked to months, and the stock went to nearly US$140 this month, and remains up 317 per cent this year. Pretty good timing there.
LUCKY: Novavax Inc. shareholders
When investors worldwide started looking for investment ideas in the field of vaccines this year, it certainly doesn't hurt to have `Vax' embedded into your corporate name. Then, governments started throwing money at vaccine companies in order to speed up development. Under `Operation Warp Speed', Novavax (NVAX on Nasdaq) got US$1.6 billion in funding from the U.S. government. This, for a company that had, according to the New York Times, has never brought a product to the market. What's more, the company's total market cap at the start of this year was only $350 million. That's all changed, though. Market cap is US$5.3 billion now. Even with a 50 per cent drop from their peak, Novavax shares are up 2,066 per cent (not a typo) this year. Analysts expect it to earn more than US$22 a share in 2021 as it ships vaccines — that's US$22 per share in earnings for a stock that began the year at around US$5 per share.