Morningstar - Q4 2020 - 45

EXHIBIT 4

provide a tailwind to Cisco Systems CSCO,
Juniper Networks JNPR, and VMware VMW over
the next few years. In addition, with employees
working remotely, companies need to heighten
their security to thwart hacking and other Internet
breaches. Working from home has accelerated
the adoption of cloud-based security software
from enterprise-based security. Examples
of companies in this space include CrowdStrike
CRWD, Okta OKTA, and Zscaler ZS.
As we noted, however, investors looking for
opportunities to capture these trends
will need to tread carefully. The markets have
not only driven up prices of many of these
companies but in many cases have also driven up
the prices to valuations that imply unrealistic
future scenarios.

Energy Takes a Hit Investors believe the demand for oil is permanently impaired.
Price/Fair Value Ratio: Energy Sector

Overvalued

Undervalued

Price/Fair Value
1.2
1.1

Overvalued

09/2010

Undervalued

09/2012

Price/Fair Value
1.0
1.2
0.9
1.1
0.8
1.0
0.7
0.9
0.55 0.6
0.5
0.8
09/2014

09/2016

09/2018
0.7

Source: Morningstar. Data as of 09/30/2020.

EXHIBIT
5
Permanent
Closures
Closures
09/2010
09/2012 Temporary 09/2014

0.55 0.6
0.5
Unit Closures Since March 1
09/2018

09/2016

40,000
Inhospitable Environment Few areas of the hospitality industry have been hit as
hard as restaurants.
26,160 Closures
Permanent
10,390
26,160
15,770
10,390

Restaurants
Social Distancing: New Ways to Travel and
Dine Out?
The shutdowns and requirements for social
distancing led to a drastic reduction for many
services, including dine-in restaurants,
hotels, air travel, and large events. Commuter
traffic dwindled, airline traffic plunged as both
business and leisure trips were canceled,
and hotel occupancy dried up to the lowest levels
ever recorded. Scheduled vacations and
destination trips were revamped to staycations
or to shorter car trips to rental properties
that allowed families to maintain social distancing.
Cruise lines canceled voyages as the spread
of COVID-19 on ships garnered headlines around
the world.

15,770

Total Retail Sales
Food & Beverage
Restaurants

30,0001
Unit Closures Since March
40,000

26,119
Temporary Closures

13,665
26,119
12,454
13,665

Retail
12,454

20,000
13,609

30,000

8,712

5,454

4,907

4,897
13,609

3,025
2,429

2,977

Beauty & Spa

Bars & Nightlife

Fitness

5,454

4,907

3,025
2,429

2,977

8,712

Nonstore Retailers 4,897
Apparel
Restaurant
Retail
Beauty & Spa

10,000
20,000
0

1,930

10,000

1,930
Indexed (Feb = 100)0
Bars & Nightlife
Fitness
140
Note: Represents the number of businesses marked closed on Yelp that were open March 1. Closures updated through July 10.
121.6
Source: Q2 2020 Yelp Economic Average Report.
110.1 120
Total Retail Sales
Nonstore Retailers
Apparel
106.9= 100)
Indexed (Feb
Food & Beverage
Restaurant
100
88.0 140
health protocols. Yet, even after reducing 121.6
our
In response, stocks for the cruise line industry
85.1 80
110.1 120
fell hard and fast and have only barely recovered
own fair value estimates to account for the
60
off their March lows. As the pandemic
near-term pandemic-instigated headwinds,
we see
106.9
100
recedes in 2021, cruise operators will have to
value for long-term investors, as we expect yields
88.0 40
reassure passengers of the safety of cruising and
and capacity for the cruise industry will recover
85.1 80
by 2023. At the end of the third quarter, Carnival 20
offer pricing discounts to entice people back
onto ships. In addition, operators will incur higher
CCL and NorwegianCruise Line Holdings NCLH 600
02/2020
04/2020 and
06/2020
09/2020
costs to implement tighter cleanliness
were 4-star stocks.
40

20
45
0

morningstar.com/lp/magazine

02/2020

04/2020

06/2020

09/2020

http://www.morningstar.com/lp/magazine

Morningstar - Q4 2020

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