The winning stocks of the post-coronavirus economy
Some stocks proved resilient as the market slump was in full swing last month. That’s because investors have singled out the best long-term bets for a new era, says Max King.
The sudden slump in the stockmarket, which wiped 32% and 29% off the FTSE All Share and S&P 500 indices respectively between 1 January and the late March low, has been routinely described as a “panic” if not “pure hysteria”. It certainly counts as a crash, reminiscent of October 1987, but a panic would be characterised by shares selling off indiscriminately and in unison. That may have been the case initially, but investors subsequently became very discriminating.
Some companies are expected to be unaffected by the pandemic or likely to benefit from it in the years ahead; for others, it could be a death knell. The winners – the stocks that were already rising when the market reached the low – give us valuable clues to the shape of the post-pandemic market and its long-term investment opportunities. There is also a surprising loser that investors should steer clear of.
A strong record in tackling viruses
Gilead Sciences (Nasdaq: GILD, up 13% between 1 January and late March): the $93bn US biopharmaceutical company focused on antiviral treatments rose to prominence with its therapies for HIV. There followed treatments for hepatitis, including Sovaldi, a cure for hepatitis C. In 2015 encouraging results were announced in pre-clinical trials for the Ebola treatment Remdesivir, but the outbreak faded before its effectiveness could be proven conclusively. Subsequently, Remdesivir has been shown to be promising in the treatment of coronaviruses such as Sars, Mers and Covid-19. Covid-19 will not be the last virus to threaten the world’s health and future threats could be much more serious. Gilead’s expertise could have incalculable value even if the Covid-19 threat fades.
Ocado (LSE: OCDO, 5%): the pandemic has resulted in a major shift to shopping online. Ocado was founded in 2000 by three investment bankers from Goldman Sachs and is a leading online supermarket in the UK valued at £9.6bn. What’s more, its technology platform has been adopted by Morrisons, Casino (France), Kroger (US) and others, while from later this year Ocado supermarket, now 50% owned by Marks & Spencer (M&S), will offer M&S merchandise to its customers. Once the most heavily shorted stock in the UK market, Ocado doubled in 2018 and rose by another 50% in 2019.
Netflix (Nasdaq: NFLX, 3%). What do people stuck at home thanks to Covid-19 do? They watch telly. Netflix has 167 million subscribers worldwide for its streaming service, which offers a vast library of films and television programmes, many of them produced wholly by Netflix or jointly with other companies. With a market value of $146bn, a price/earnings multiple approaching 100, annual content expenditure of $17bn and $12bn of debt (much of it rated “junk”), Netflix is second only to Tesla as the company value investors hate most.
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