With neither a cure nor a vaccine in the immediate offing, the Covid-19 crisis shows no signs of abating and there is still a great deal of uncertainty over how long and deep the resulting economic downturn will be. Our focus therefore continues to be on investing in resilient companies that stand the greatest chance of withstanding the ravages of this pandemic.
Sadly, in the short term, it’s not going to be easy for businesses in any sector. Apart from a lucky few, most companies are currently focusing on survival, not growth.
Investors should look to get behind those likely to prevail within their sector. Here are three businesses that we believe are well positioned to weather the storm and should offer investors a steady return over the medium term.
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The shift to online operations
Almost overnight businesses and schools had to move their operations online and individuals were forced to find new ways of socialising with friends and family. One big winner of this shift was Microsoft (Nasdaq: MSFT).Its cloud technology allows multiple people to be online at any one time and its applications experienced a huge spike in usage as schools and businesses adopted them.
Microsoft Teams, the software giant’s equivalent of Zoom, reported over 75 million daily active users (DAUs) by the end of March – up 70% from reported 44 million on 18 March. Looking to the future, the pandemic is likely to accelerate the adoption of Artificial Intelligence (AI), analytics (discovering and interpreting patterns in data), customer behaviour services and video-conferencing. This will be beneficial for Microsoft, a company involved in large digital-transformation projects and AI offerings.
A top tip in the travel industry
One of the big losers of the pandemic is the travel sector. With lockdowns imposed across the world, travel has almost come to a complete standstill and travel stocks have taken a big hit. With that in mind, it’s perhaps surprising that we feel positive towards Booking Holdings (Nasdaq: BKNG), the owner of the online travel platform Booking.com, when the outlook for this sector remains decidedly unclear, if not bleak. But in terms of business resilience, Booking.com is a contender. Our estimate is that it could survive three years with no revenue. In addition, hotels will increasingly lean on it as they set about attempting to fill rooms, which means it will perform solidly in this downturn.
Hospital equipment is a growth area
Drug companies seeking a vaccine have been in the spotlight. But vaccine manufacturing is complex, heavily regulated to ensure safety and difficult to expand profitably. The immediate benefactors of the Covid-19 crisis are manufacturers of hospital equipment.
Philips (Amsterdam: PHIA) produces hospital ventilators, which have been in high demand as governments around the world seek to increase the number of ventilators available in intensive care units (ICUs) and build strategic stockpiles. Philips also produces ultrasound systems for the management of Covid-19-related lung and cardiac complications, so it is well positioned to take advantage of the current crisis and any future coronavirus outbreaks.
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