Swine Flu Shorts
No the title of this post does not refer to some new fashion trend that's arriving just in time for the summer, "Oh man, did you see that honey in the swine flu shorts." Nope I'm talking about the latest hot global pandemic...swine flu (see article: Swine flu sparks global concern).
Let me begin by saying that while this disease outbreak (or whatever you want to call it) is a lot cloer to home for Americans than the Asian Bird Flu that happened a couple of years ago, in the end I suspect that its impact will be the same. This means first and foremost that anyone believes that this is some sort of new Armageddon that will wipe out 50 to 100 million Americans like some flu did a hundred years ago is Cuckoo for Cocoa Puffs, though I'm sure that this will provide some temporary ammunition to the bomb shelter, survivalist crowd so to speak. I'm not saying that a deadly virus that wipes out half of the world is impossible, just that it is a very unlikely outcome.
Although it had a real impact upon the unfortunate families that were affected by it, Bird Flu was not devastating. What it did have however was a major negative impact upon the stocks of a number of companies. Anything relating to chicken was temporarily crushed. I need to do some research, and perhaps someone who is reading this can help me, to see exactly what companies' stock prices were hurt by the bird flu, but one that comes to mind off of the top of my head is Buffalo Wild Wings (BWW). If the bird flu had a negative impact upon any company that was remotely associated with chicken, the swine flu will likely have a negative impact upon companies that are associated with pig products like ham and pork.
Smithfield Foods (SFD) is the largest public producer of pork that I am aware of. Rumors of a potential takeover have buoyed its stock price somewhat lately and it has stated that it has tested the pork from its Mexican facilities and it is save, but come on. I'm about the least worried person around about the potential health impact of pork upon me and even I wouldn't buy pork from Mexico right now. Even is this news doesn't have any real impact upon the company's earnings, and I suspect that it will, it is going to take a hammer to its stock in the short run.
Another group of companies that I suspect will be hammered by this news is Mexican Airports. Over the past several months I have been writing about how I believe that the slow economy and the media reports of widespread violence in Mexico would have a negative impact upon the stock prices of Mexican airport operators OMAB, PAC, & ASR as it took a toll on their traffic numbers.
Now these companies have something else to worry about...the swine flu. I have seen a number of reports about students from all over the world, from New York to New Zealand coming down with suspected cases of the swine flu after going on vacation to Mexico. When one out of every five residents of a country's largest city are wearing masks to protect themselves against the virus I'm definitely not going to that country on vacation, even if the real risk of me contracting something is minimal. Fewer tourists means less traffic and in turn less money for Mexican airport operators.
Bloomberg had an article on the swine flu and airlines this morning:
Airlines Look for Flu Symptoms While Keeping Flight Schedules
U.S. airline operators are on "heightened awareness" for passengers that display potential swine flu symptoms but have not canceled any flights to Mexico yet. Passengers do however have the option to cancel their flights to Mexico or change them to another location without having to pay any of the normal fees or penalties.
While airlines aren't officially canceling flights and the Center for Disease Control has not yet officially recommended avoiding travel to Mexico this sort of negative news could potentially have a devastating impact upon the country's tourism business and have a negative impact upon the volume of travelers that visit its airports.
Travel to Asia dropped dramatically several weeks after the first cases of SARS were reported back in 2003 and the demand didn’t pick back up for six months.
This news will likely make Mexican airports a great short as a trade and it could provide investors with a long term horizon to get into these companies on the cheap.