‘Stock’ing up for recovery (part two)

Speculative opportunities abound in the travel and hospitality industries. Portfolio manager Margaret Samuel picks four stocks for brave-heart believers. Here are two of them.

Investors want to know when the bottom of stock prices in the travel industry will occur so they can start nibbling. In this article, we look at some travel stocks with prices that are near bottoms of their trading ranges. Although there is some risk that some or all of these may not recover, we believe the ones we present here have strong enough balance sheets or financial resources to withstand this current downturn and that they can be purchased and held for speculation rather than investing.

NFI Group Inc. (TSX—NFI)

For those investors who would like some exposure to the transportation part of the travel industry with a little more downside and dividend protection, NFI Group Inc. may be worth consideration.

Passengers are seeking modern transportation options they can feel good about as traffic congestion, costs and air quality continue to saddle today’s growing cities.

Accordingly, NFI engineers transit technology that serves communities and makes cities smarter, while safeguarding precious resources.

NFI was founded in 1930 as Western Auto and Truck Body Limited. Today New Flyer operates as New Flyer of America Inc. and New Flyer Industries Canada ULC, subsidiaries of NFI Group Inc. (“NFI Group”).

NFI is now the largest transit-bus manufacturer in North America, with fabrication, manufacturing and service centres in the United States and Canada. NFI Group Inc. manufactures approximately 8,800 buses and coaches annually, actively supports over 105,000 buses and coaches currently in service throughout the world, and has delivered the most electric buses to US properties.

With 9,000 team members operating from more than 50 facilities across ten countries, NFI is a leading independent global bus manufacturer providing mass transportation solutions under brands New Flyer® (heavy-duty transit buses), Alexander Dennis Limited (single and double-deck buses), Plaxton (motor coaches), MCI® (motor coaches), ARBOC® (low-floor cutaway and medium-duty buses) and NFI Parts™.

NFI buses and motor coaches incorporate a wide range of drive systems available including: clean diesel, natural gas, diesel-electric hybrid and zero-emission electric (trolley, battery and fuel cell). For the fiscal year ended December 29, 2019, NFI posted revenues of US$2.9 billion and to the end of the third quarter 2020, revenues have declined by 13.6 per cent.

While sales and earnings have declined in 2020 compared to 2019, in its November, 2020 report of third quarter results, NFI stated that it is recovering from the second quarter 2020 lows and that liquidity remains strong. NFI views 2021 as a transition year with COVID-19 pandemic continuing to impact end markets. It believes it will take time to recover to pre-COVID-19 levels, but that government stimulus and vaccines may accelerate recovery. Indeed, NFI asserts that government support for transit remains high.

NFI pays a dividend yielding 3.53% per share.

Although COVID has had a negative impact on NFI, the effect on NFI has been significantly less severe than it has been on Carnival or Ashford.

Gatekeeper Systems (TSXV—GSI)

Another aspect of the travel industry is a nascent part of the business and may be of interest to investors seeking exposure to companies that are developing technologies to make travel seem safer, thereby helping promote recovery of the travel industry.

Gatekeeper Systems Inc., incorporated in 2010, engineers, manufactures and distributes industry-leading, high-definition mobile video surveillance and safety solutions for a range of markets, including school districts, law enforcement, public transit authorities, as well as the US military and Coast Guard.

Over the past seven years, Gatekeeper has equipped approximately 28,000 school buses, transit buses and trains with 97,000 video devices and intelligent mobile data collectors, which forms the foundation of the company’s Platform-as-a-Service (“PaaS”) business model. The intelligent devices collect vehicle data such as video, audio, GPS, time, door open/close, and serve as the ‘black box’ to aid in transit accident investigations. Gatekeeper also provides artificial intelligence (AI) solutions to support video-evidence collection. Interest in the company’s platform has expanded beyond its core markets of school and transit buses to multiple mobile markets including city and military vehicles, special law enforcement vehicles, courier vehicles, first responder and ambulances.

An opportunity arose for Gatekeeper on March 11, 2020 when the World Health Organization declared the COVID-19 outbreak a global pandemic, severely disrupting all modes of global passenger travel including school buses and public transportation vehicles. The company immediately began to research, design and configure passenger health check- and contact tracing-solutions that could be deployed by school and transit authorities to provide a safer transportation environment for their passengers.

On August 4, 2020, Gatekeeper launched Intelligent Temperature Sensing System (ITSS), an infrared body temperature sensor system that incorporates a smart panel, thermal imaging and artificial intelligence to quickly and accurately measure the body temperature of passengers who board school buses and public transportation vehicles. ITSS allows transit and school bus agencies to deploy health screening tools similar to those being put in place at airports. ITSS is a contactless system that can determine body temperature within 20 milliseconds using thermal cameras, artificial intelligence and video analytics. Visual and audible alarms are triggered when temperature thresholds are exceeded. When passengers board a bus, the ITSS panel records body temperature with an accuracy of +/- 0.5 degree Celsius. The 7-inch ITSS panel is equipped with facial recognition capabilities to improve accuracy and allows customers to pursue future applications such as intelligent passenger routing, contact tracing, passenger counting or payment verification. The panel records images within 40 milliseconds and has storage capacity of 50,000 facial images.

During November 2020, the company commenced a national marketing campaign to raise awareness of how ITSS can help organizations with health monitoring and contact tracing. The marketing campaign has been designed to reach over 50,000 influencers and decision makers in school districts, universities, transit authorities and more. The company believes passenger health monitoring in public transportation is an emerging North American growth trend that will continue even after the COVID-19 pandemic subsides. The company intends to integrate ITSS into its PaaS platform business model as a new additional data layer.

Unlike the other companies reviewed here, COVID has not resulted in a decline in revenue. Indeed, overall revenue for the year ended August 31, 2020 was $20,316,576, compared to $13,726,313 for the year ended August 31, 2019, representing an increase of 48%.
While a small part of the business of Gatekeeper is directed at mitigating the impact of COVID, investors can participate in this development while benefiting from the company’s other expanding businesses.

Depending on an investor’s objectives, these 4 firms could be purchased for both speculative and investment purposes. This is particularly so in the context of a resuscitating travel market that may soon appear and if the COVID vaccines lift us out of the global pandemic lockdowns.

Margaret Samuel, MBA, LL.B., CFA is President, CEO and Portfolio Manager of Enriched Investing Incorporated. She can be contacted at info@enrichedinvesting.com. She or clients of Enriched Investing™ may hold positions in the securities mentioned. The information provided is general in nature and does not represent investment advice. It is subject to change without notice and is based on the perspectives and opinions of the writer only. It may also contain forward-looking statements that may not prove to be accurate. Every effort has been made to compile this material from reliable sources; however, no warranty can be made as to its accuracy or completeness. Before acting on any of the above, please consult an appropriate professional regarding your particular circumstances.

This is an edited version of an article that was originally published for subscribers in the January 2021, Second Report of The MoneyLetter. You can profit from the award-winning advice subscribers receive regularly in The MoneyLetter.

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