Imagine trying to profit off of all those newly furloughed workers who know that their “staycation” will likely be temporary. This is where you have to be extremely careful on evaluating which companies win and lose in consumer spending and in low-cost or affordable entertainment.
24/7 Wall St. has decided to take a look at several companies which would do well or would not be affected by any measure under a government shutdown. The trick is to decide which companies would actually benefit from some 800,000 people not going to work each day by profiteering from all of this new temporary free time during the day.
Some of these beneficiaries will seem a bit funny on the surface, but the reality is that this is serious business for these few companies. Many or most business segments will suffer from a government shutdown, and often for different reasons or logic than some might be willing to consider.
We would be quick to point out that these 800,000 or so workers will have to be frugal during this new time off. They do not have any clue about how long a shutdown may last. Their kids will still have to go to school during the day and these people will almost certainly be doing something with their newly found free time.
The first two names that pop right into the mind as beneficiaries are Altria Group Inc. (NYSE: MO) and Reynolds American Inc. (NYSE: RAI). Think Marlboro and Camel. Cigarettes are defensive by nature for investors, and now you could argue that there might even be a slight uptick in cigarette consumption during a government shutdown. You know how you see all of those workers “on a smoke break” outside government and private sector office buildings? Now all those furloughed government workers can smoke several times more, or as many more times as the wish, each day at home or at a friend’s house without a manager monitoring their smoke breaks.
Anheuser-Busch InBev (NYSE: BUD) is supposed to be the king of beer, and there are now going to be another 800,000 workers either sitting at home or over at a co-worker’s house with a lot more free time on their hands. What will people do when their kids are at school with new-found free time on their hands? If it was January they might go hit the gym. In October, they might decide to down a few extra six-packs. After all, a 6-pack or 12-pack of beer is generally cheaper than wine and booze.
AOL Inc. (NYSE: AOL) now has 800,000 new daytime readers who may actually be using desktops or tablets at home without any time constraints. AOL has no government business to speak of and it is still considered a top online destination that is focused on America more than anywhere else. AOL should have no incremental cost increase at all and should have a wider audience. The government shutdown could be an incremental traffic driver for the company. If you know much about web traffic and advertising trends, it may even help the gain that much more for online ad spending trends that the shutdown came at the first of the month rather than late in the month. One could easily make the same argument for Yahoo! Inc. (NASDAQ: YHOO) as well, but we will consider it a runner-up for simplicity and because it is more global.
Church & Dwight Co. Inc. (NYSE: CHD) is more expensive on a P/E ratio than other consumer products companies, but this one has been the beneficiary of its adult-oriented products and other household items. There were reports all over during the recession that unemployed people were having much more sex than people who had to work all the time, so with a week off or couple weeks off it seems more than logical that many of these 800,000 workers will be using more Trojan brand products than normal during the time they are off.
Cinemark Holdings Inc. (NYSE: CNK) stands to all of a sudden get a new influx of those 800,000 day-trippers at the movies. If temporarily out of work employees want to do something new during the weekday that does not involve shopping or drinking, perhaps they will flock to the movie theaters for a matinée. So what if the popcorn and sodas are overpriced. At least it is a cheap outing for one or two people. Is it any coincidence that Cinemark shares just hit yet another all-time high?
Dollar General Corp. (NYSE: DG) is the king of dollar stores, and therefore is the king of the “trade-down economy” in retail. If people still have to buy their necessities and other household items, it is easy to argue that 800,000 more people who have to buy things with a more cost-budget mentality until the paychecks start flowing again could be forced into being dollar store shoppers. This is a growing theme for the next decade, even without a government shutdown.
Domino’s Pizza Inc. (NYSE: DPZ) just has to be getting more at-home lunch deliveries. Most government workers like to (or are forced to) eat out at lunch, so they are not ordering in as much delivery lunches like independent business people. All of these carry-out deals for $5.99 and $7.99 have to be appealing now during the lunch hour to 800,000 or so furloughed workers. Domino’s is far from luxury and it is not exactly a place that might see a drop from drivers on the way to or from their government jobs.
Facebook Inc. (NASDAQ: FB) should also get a boost, although Facebook has more international users than it does in America. Government workers now do not have to only Facebook on their smartphones during the day. Another 800,000 or so Facebook users can brag endlessly about what they are doing on their time off during the week. We would even predict more hamburger (or pizza) lunch photos will be posted this week by the public, just what everyone needs to see (or not).
Sinclair Broadcast Group Inc. (NASDAQ: SBGI) is perhaps a winner more than any other media company. Cable companies and other media companies could have higher operating costs, and there may be fewer in-car radio listeners without government workers on the road. So if they are staying home and want to be couch potatoes, doesn’t a broadcast TV station owner get the biggest benefit? Sinclair has 162 television stations in 77 markets (after pending deals) and its TV group reaches approximately 38.7% of US television households and includes FOX, ABC, MyTV, CW, CBS, NBC, Univision and Azteca affiliates. Shouldn’t they have higher ratings all of a sudden during the day now?