Post-COVID – Investing In the Return to Normal by, D.R. Barton, Jr.

 

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I’m really relieved to see the first signs of the slowing of the coronavirus in Europe. In the U.S., confirmed cases and deaths from the virus are growing more slowly. Many science and medical experts say that the social distancing and other mitigation measures are starting to work.

I believe, however, that the coronavirus pandemic and the “pause” we put on the economy will leave its marks. We will re-enter a different world post-virus. Some of what we took for granted about business, the economy, and human behavior have been altered for a long time – or permanently. Even when the economy starts to recover, it’s going to happen in a stepwise fashion. Some regions and countries are already coming out the other side, the U.S. is entering the peak of the coronavirus pandemic, and other countries aren’t close to their peaks yet.

The re-entry process will be slow but it has already started now overseas. Austria, Denmark, and hard-hit Italy have begun considering gradually reopening schools, businesses, and travel. Meanwhile, China, the geographic origin of the outbreak and also the first country to seemingly get it under control has reopened its factories and citizens are returning to work.

And before long, we will start loosening restrictions here in America, too. I believe that all the stimulus that has been created and additional stimulus to yet be poured in the global financial system will create post-crisis recovery that could be the Trade of the Decade. Much of that monetary and fiscal stimulus will flow into the stock market to fuel a huge rally (maybe like the last three quarters of 2009, perhaps?).

So it’s time to start putting together your post-COVID investment plan. Here are some ways to make sure your investment plan fits our new reality.

China Shows There’s No Quick Return to Business as Usual

For weeks, we’ve all been cooped up in our homes, told not to go outside, and to stay 6 feet or more away from other people. These messages, and the underlying fear of a second wave of coronavirus infections will change our behavior for the long haul. Once we pass the peak of the COVID pandemic, people will not go back to their old habits quickly – and I’m not just talking about how many of us will be or won’t be wearing face masks.

Take China, for example. China has not been forthright on its count of infections and deaths during this pandemic and the Chinese government has admitted as much. Recently, it stated that people who had no symptoms but tested positive for the coronavirus were not counted in their official numbers. It’s equally clear that China has managed now to get its outbreak under control. The loosening restrictions, closures of field hospitals, and lower number of cases from official and unofficial sources show that the outbreak is fading.

Yet the behavior of Chinese citizens is nowhere near close to what was normal pre-virus. Take a look at this chart from GPS provider TomTom showing traffic congestion in Beijing:

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GPS Traffic Data in Beijing: Red = Traffic Counts Now, Blue = Traffic Counts 1 Year Ago

As you can see from the red lines, the morning rush hour is more or less back at 2019 levels. People in Beijing have returned to their work commutes. During the middle of the day, however, especially at noon, there is no congestion at all. Folks are not going out to run errands or drive to lunch like they used to. The evening rush hour is much lower than last year – again, fewer after-work errands, eating out, movies, or stepping out for a drink with friends. Moreover, there is barely any traffic on weeknights or over the weekend.

In other words, life has not returned to “normal”. Bear in mind that Beijing was never a true COVID-19 hotspot which makes the changes in behavior all the more striking.

We’ll probably see similar after-effects in Europe and the U.S. once our lockdowns begin to lift.

So how should investors begin to prepare for this new normal?

Post-COVID Losers and Winners

After weeks in our homes relying on the Internet for entertainment and contact time (virtually) with friends and family, live in-person entertainment options will have a lot of convincing to do when the social restrictions lift.

Movie theaters will be among the hardest hit. We’ve now had weeks to get used to streaming more video online than ever before at a much lower cost than even a single movie ticket. Several apps also allow us to stream movies simultaneously with our friends and to be able to chat about them in real-time – without worry about being hushed by the rest of the movie theater.

Even worse for the movie chains, studios are deciding to break with the 90-day exclusivity given to movie theaters for a new release. On March 16, Universal released three movies directly to streaming services. Disney took a similar step by releasing Frozen II on its Disney+ streaming service three months ahead of time.

With faster new releases on streaming services, new apps for social interaction among households, and lingering fears about sitting close to strangers, expect movie theater chains like AMC and Cinemark to recover slowly.

Casinos will face similar struggles compounded by people’s reluctance to travel long distances. Airlines already have a reputation for being uncomfortable and cramped. With social distancing fresh in everyone’s minds, expect air travel numbers to stay low for a while.

This will also affect the hospitality sector generally and specifically cruise line companies. After all, many of the most high-profile outbreaks of this pandemic happened on cruise ships showcasing just how isolated and dangerous they can be if something goes wrong.

Expect many restaurants to struggle with attracting customers back as people have become more used to delivery services or simply cooking in.

In short, it will take time for people to get comfortable doing things with other people again. Restaurants, airlines, cruise ships, movie theaters and other forms of expensive entertainment requiring close contact with strangers will all suffer. That’s before even considering the lost spending power of millions who have suddenly lost their jobs.

Will there be any winners in the post-COVID recovery? Of course, it’s going to be the companies that are already adapted for this new, virtual world.

The Big Tech companies like Apple Inc. (AAPL) and Microsoft Corp. (MSFT) came into this crisis with huge war chests of cash. Not only does this mean they have the reserves to weather the storm, but some are already taking the opportunity to buy smaller companies that have become much cheaper. For example, Apple just acquired an AI startup called Voysis to improve Apple’s digital assistant Siri. Expect more acquisitions like this as we go forward.

Companies like Microsoft, Amazon, and Citrix are also seeing a boom in the use of their cloud services and videoconferencing platforms, as many office workers across America have shifted to working from home.

And of course, Disney’s Disney+ streaming service, Netflix, other home entertainment options are more popular than ever. This particular habit will likely stick even when other, less convenient options reopen. NFLX is the best pureplay for streaming right now.

Final Words

I don’t believe we’ve seen the worst of the stock market decline yet. But anyone with a fear of missing out (FOMO) on the next market leg up can add to their portfolios the stocks of the companies mentioned above. They’ll all be winners on the other side of the crisis, so stick with those well-known names for now.

I believe restaurant, airlines, casinos, and cruise ship companies will have a longer recovery time and should be added to your portfolio later in the recovery.

Great trading, stay safe out there, and God bless you,

D. R.

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