Covid Quarantine Winners. What should I invest in after the pandemic?

So what should we be looking for? Certain areas will fair much better as the pandemic benefits goods and services for the “stay at home” culture we are currently experiencing.

It is clear that once the world starts opening up again there will be a change in the ways that businesses run themselves. In all likelihood, many staff that have worked from home may be asked to continue this way. Let’s be honest. If a business can reduce its required office floor space by a good size, why wouldn’t they? Real estate office space isn’t cheap and if you can reduce that spending cost it would be insane not to. The trade off is making sure your workforce actually fulfil their duties they are under contract to do. There is new tech in the pipeline and that is currently being worked on that can regulate an employees work ethic and productivity. It all seems a bit “Big Brotherish” to me, but perhaps this is the requirement staff will have to agree to in order to benefit from the clear advantages that working from home will offer. Some of those theories I will venture into later in this article.

It won’t work for every business, but it is hard to deny that many could adopt this work from home philosophy. Many areas of life will most likely change and it is these companies that do adapt are to those changes whose stocks you should be looking out for.

A smart chap once said,

“The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage.”

Yes, you guessed it. That was a Warren Buffet quote.

That stands true in any scenario and especially how investing should be approached today and into the future, during and post pandemic.

There’s no elephant in the room here. It was a bug that ended the longest bull market in history. When it hit, it did so with such ferocity that the Dow Jones Industrial Average had its worse quarter since 1987. The crash has predominantly been caused by a global stoppage of all of mankind's economic activity. Can we compare this to anything previous? Well not entirely. We can go back and look at other major events that have lead to collapses in the market such as the dotcom bubble bursting, 9/11 and even the financial crisis for 2008/09. But it would be a wasted exercise to look for a precedent to Covid-19. They do all have one thing in common. They were unplanned for and completely unexpected. Hence a crisis.

So the big question for investors is what should we do? It might be wiser to try and break this down and be more specific.

What publicly traded companies can make it “to the other side” of the coronavirus?

In other words, which companies’ business models won’t be completely destroyed by Covid-19? Investors pondering this question should keep a company’s balance sheet in mind: Too much debt will drag a company down during hard times.

What companies will not only survive but also prosper in a post-coronavirus world?

These are what you should be searching for and targeting.

Surely these two questions are much more pertinent than the usual questions we see headlined everywhere lately. “How long is the pandemic going to last?” and “When will the economy recover?” These would be good questions if the answers were knowable but its just the same as asking how long is a piece of string? We just simply don’t know for sure.

A decent bit of guidance you may wish to consider is: If a business you are considering for investment depends upon a speedy return to normal, you should look elsewhere. Only invest in stocks that you don’t mind holding if the markets remain closed for an extended period of time. I am certainly not convinced that is the case right now and there are early signs of certain economies moving into recovery stages and countries lifting their lockdowns or at least relaxing them. But still it is better to err on the side of caution. What if there is a second wave etc.

In a crisis like this, first-principle questions like these should be at the forefront of every investor’s mind. Yet it’s always amazing how, in times of crisis, people so quickly and utterly forget them. People panic, and they run around like headless chickens.

In this frenzied environment, one cardinal rule of investing is especially pertinent: By definition, the value of a business today is simply the sum of its future profits discounted back to the present at an appropriate interest rate.

The point is that a business’s value today is made up of a long string of profits extending out into the future. As anyone who’s ever done a discounted cash-flow analysis can tell you, the vast majority of a business’s present value—roughly 70% for many businesses—comes not from this year’s earnings, or next year’s, but from the earnings that should accrue over the decades.

It’s a pretty simple principle and yet many forget it during events such as the ones we are witnessing. Why do investors dump securities that have long, deep, and growing profit streams because “this quarter’s going to be awful” or “it’s going to take a while for them to get back to a post-corona normal?” These are disastrous decisions that shouldn’t be applied. At the same time, many embrace businesses that are currently doing well but whose long-term future is bleak. It’s madness, and it will end poorly for those who engage in it.

Given all of this, let’s consider what changes may occur and those set to benefit.

People may well have more free time going forward if we do start working more from home. It is important to understand that and believe it will be so if any of the following will start to make more sense as possible investment choices. We can’t look at every countries statistics, so I will concentrate on the US. But in most Western industrialised countries it generally follows a similar flow.

The average U.S. worker commutes 54 minutes a day, according to the U.S. Census Bureau. Assuming 262 work-days a year, working from home frees up about 240 hours a year. That is a lot of extra free time!

What will people do with that free time? A fair amount of this spare time, believe it or not, will go on playing video games, given that 65% of U.S. adults already do. Gaming companies will be clear winners going forward but which ones? Activision Blizzard US:ATVI and Zynga US:ZNGA should be the primary winners because of their strong content slate.

Everyone currently operates on different platforms so another beneficiary in the work-at-home trend will include companies that help remote employees collaborate with their bosses, colleagues, clients and customers. This can get tricky in a world where people use all-sorts of different devices from PCs and smart phones, to tablets and good, old desk phones to communicate via voice, text, email, video and social media.

Legacy, on-premise communications solutions are limited and will not adapt well to an increasingly work-from-home world. Cloud-based solutions are better equipped to allow seamless transitions to work from home.

Enter Ring Central US:RNG. It offers a cloud-based system that can tie it all together, making it easier for home-based workers to connect via online meetings, team messaging, video and voice. Other companies that help with web conferencing and collaboration include, Zoom US:ZM, Slack US:WORK, Atlassian US:TEAM, Dropbox US:DBX and Microsoft US:MSFT. Others to consider would be NICE US:NICE, which helps companies set up cloud-based contact centers and DocuSign US:DOCU which will also help with paperwork flow.

And then there’s virtual desktops. Cloud-based desktop virtualization systems store employee desktops remotely on servers instead of locally on devices. This helps remote employees access their work desktops from many different devices including PCs, smart phones and iPads, which makes it easier to work from home. The work-at-home trend will help companies that offer virtual desktop software like Citrix US:CTXS, VMware US:VMW and Microsoft US:MSFT.

All of this is going to require a higher level of security. One of the earlier mentioned stocks, Zoom was under fire recently due to hacking. However, if it can get that sorted out, and it is, it should fair well into the future. As more people work at home, it’s easier for thieves and hackers to break into computer systems. So this trend will increase security spending. Take a look at CrowdStrike US:CRWD, Varonis US:VRNS, Palo Alto Networks US:PANW, Okta US:OKTA and Ping Identity US:PING.

Increased communication from remote locations will boost internet traffic, putting a burden on network infrastructure and forcing telecom companies to increase investments in equipment. This will benefit Ciena US:CIEN, Juniper US:JNPR, Arista Networks US:ANET and CommScope US:COMM. The work-from-home trend should also benefit Equinix US:EQIX which is a data-center real estate investment trust, or REIT.

Higher demand for cloud servers, laptops and home computers, routers and communications-infrastructure equipment will boost demand for chips. Broadcom US:AVGO and Inphi US:IPHI are companies that have a lot of exposure to this trend.

So there is plenty to be thinking about and getting on with. As always, do your own study. But following a simple thought process will hopefully bring you closer to similar conclusions. Solid balance sheets and the ability to meet liabilities will see your portfolio grow. Otherwise, just come and talk to me directly and I will do it for you. My bio is below for all those eager to take advantage of the current market situation and need a broker to take care of their wealth.