In this blog post, I’ll give my thoughts on industries that will almost certainly see many bankruptcies. In general, the stocks with the most bankruptcy risk have some combination of the following:
- A fall in revenues because consumers don’t want to go out in public and possibly die. Some industries will continue to be impacted even after a vaccine is developed (if it is developed).
- Fixed cost leverage. Some businesses such as restaurants are locked into leases that will cause them to burn a substantial amount of cash.
These situations may be very difficult to analyze. However, there may be opportunities in the mispricings such as going long restaurant franchises and shorting airlines, E&Ps, and the lowest quality lenders. If an industry such as airlines has high bankruptcy risk, I will also talk about related industries even if they do not have high bankruptcy risk.