The COVID-19 Portfolio:
Who Profits From Our New Pandemic World?
By C. Scott Garliss
Our lives have been changed dramatically by the COVID-19 pandemic…
Experts predict it will take another 12 to 18 months before a viable treatment will be ready for public use. Until then, “normal” is going to remain under stay-at-home orders.
Here in the U.S., most states have issued shelter-in-place proclamations. That means unless your business has been deemed “essential,” you’re supposed to avoid leaving your homes as much as humanly possible. As a result, some 90% of the population, or about 300 million American citizens, are on lockdown.
To figure out what that means for us as investors, we need to look at what’s going on around us. What types of companies have done well in this type of situation in the past?
We have a three-part investment thesis for you to consider today…
1. Much of the nation who still has a job is working from home. That means businesses need to become more efficient. They need ways to keep people connected and working in a timely, coordinated manner despite the fact they’re remote. That way, workplaces can do everything in their power to keep people in their jobs and revenue coming in the door.
2. Everyone else – whether they still have a job or not – is avoiding one another. They’re also avoiding spending money. Everything from less money spent on your morning coffee at work, lunches out, and gasoline for the commute or a weekend getaway road trip. Not to mention, no one will be going out for a family dinner or to meet friends at a bar. All of that will be done from your house. In other words, we’re in a low-growth (if any) environment.
3. Finally, because of the anticipated economic shock, the Federal Reserve has cut interest rates to zero. The central bank has also launched multiple facilities to stabilize credit markets and ensure interest rates don’t rise.
So investors should be looking for something that makes businesses more efficient that can profit in a low-interest-rate, low-growth environment.
There’s one obvious answer – technology.
Technology companies are already dominating this environment. It’s hard to do anything that doesn’t have the word “virtual” stuck in front of it…
Video chats, conference calls, school, happy hour, talk shows, and trivia night – they’re all being done online. Society has no choice. It’s an avenue for humans to maintain the social interaction they crave without coming into direct contact with one another.
But what are the companies that should benefit?
The No. 1 Online Crisis Dominator
There is one name that stands out above everything else – Amazon (AMZN). Given that I’ve now spent three weeks confined to my home, it’s amazing how much the company touches my family’s day-to-day activities.
Prior to the pandemic’s rise in this country, we had never used their food-delivery service. That was before the rush to stockpile canned goods, vegetables, and toilet paper… not to mention the hours-long lines at some of the local stores. In addition, we wanted to avoid as much social contact as possible. Amazon’s grocery-delivery service, Amazon Fresh, seemed like the solution to our problem.
Apparently, everyone else thought so too. Right away, we discovered they only allowed ordering food within a three-day window. If there was nothing available, then no-go. We’ve run into that problem multiple times. Demand is off the charts.
My wife also began to get notifications about new movies being released directly to Amazon Prime Video. Movie theaters were forced to shut their doors because of the virus outbreak. Studios had spent years producing new films, and they need to recoup their investments. So, they’ve gone to the next best route – on demand.
Scott recently gave a video interview about tech companies to watch in a down market – click here to watch it on YouTube.
We’ve already used Amazon Prime Video multiple times. It’s great and easy. And buying a movie through Prime is much cheaper than taking your family to the movie theater. The purchase costs us about $21 versus a trip to a matinee movie for a family of four, which runs around $51. And that’s before we even purchase the popcorn, candy, and drinks. Based on the math, Amazon may have found an incremental revenue stream.
It has also become part of our school routine. I have a 7-year-old son and a 5-year-old daughter. They’re both involved in virtual school. Despite the fact that they’re learning from home, they still need school supplies like journals, pencils, arts and crafts, and so on. The teachers have recommended specific goods they found on Amazon. Naturally, that’s where we’ve gone to get these items.
Amazon’s importance and usefulness has only increased. It’s practically becoming a backbone of infrastructure in our country.
Besides Amazon, Kroger (KR), Walmart (WMT), and Target (TGT) all offer services to maximize your social distances via home delivery or curb-side pickup.
The Future of Money
To conduct any transaction, there’s one constant – payment for services rendered. Most of us grew up paying in the form of cash, check, or credit card. While all of these methods are still applicable today, there’s another form of payment that’s on the rise – electronic payments. More and more, vendors find it easier to accept.
Most of us grew up paying in the form of cash, check, or credit card. While all of these methods are still applicable today, there’s another form of payment that’s on the rise – electronic payments.
As the outbreak began to take hold in the U.S., my family and I were visiting my wife’s parents in Key West, Florida. They were there for the month of March. They’ve been staying at the same place for 16 years. We have many of the same routines every time we visit.
But one thing I noticed this time around was the look I got whenever I tried to hand a vendor cash. Everyone gave me and the money I was handing them the “stink eye.” It may be the only time in my life I’ve ever seen someone have a look of disdain for a $20 bill. But whenever I handed them a credit card, they didn’t seem to mind at all.
I get it, money is handled by a lot of people and carries a lot of germs. If you want to avoid social contact, dollar bills are not your friend. But with electronic payments, the contact can be avoided completely. Individuals can tap their credit cards – American Express (AXP), Mastercard (MA), or Visa (V) – directly on the reader, or they can swipe it through a payment processing device like Square (SQ). Even better, services like PayPal’s (PYPL) Venmo or Apple Pay (AAPL) can be used to pay with your mobile phone.
The Virtualization of Work and Play
Then there’s the remote classroom and work angles we discussed earlier. Considering the shelter-in-place orders, it’s hard not to find a family that isn’t doing this. And all of this requires platforms by which people can connect.
Classroom and work angles: all of this requires platforms by which people can connect.
The company that jumps out the most to me is Zoom Video Communications (ZM)…
Both of my kids’ schools use it. My son dials in twice a day for classroom time, my daughter several times a week. They both dial in during the evening at 7 p.m. to listen to the librarians at my son’s school read a couple of children’s books. Already, each school is adding more classes as we go. If we’re able to finish the school year in the classroom, I’ll be shocked.
Other virtual hosting services are seeing an uptake in usage as well. Corporate America is using multiple channels… Webex by Cisco (CSCO), Skype from Microsoft (MSFT), Slack (WORK), and Facebook (FB) have seen increased demand.
And after a long day of work and school at home, you need an escape. Besides the occasional glass of wine for mom and dad, movies are a tremendous family outlet. Now, more than ever, movies offer that chance to escape and forget about the stress of keeping everyone safe.
As we mentioned earlier, studios are going direct to the home to find a new revenue stream. Besides Amazon Prime, services like Disney+ (DIS), Apple TV, and Netflix (NFLX) should all find wind in their sails from this trend.
Digital Storage in the Cloud
All of the services we’ve mentioned so far are creating the same thing – an increased demand for data and storage.
None of their functions can be done without having somewhere to store all of that information.
Grocery stores need a place to keep data on the inventory of what’s available. Movies and TV shows need to be stored so they can be accessed. Not to mention the history of what individuals have purchased in the past and what they may want again.
That’s what cloud-services companies provide. They make it easy for every business to operate without having to invest a fortune in server farms and data storage. And it’s not only owning that equipment, but servicing it, updating it, and replacing it.
They require time, money, and more people. It’s easier to rent it from someone else. Companies like Amazon Web Services, Microsoft’s Azure, and server farm REIT Digital Realty (DLR) are all seeing increased demand. Microsoft said it has seen a 775% jump in demand in areas where social distance requirements were in effect. Amazon postponed its Prime Day, likely because it can’t handle the extra demand.
Security to Protect It All
Of course, as our lives increasingly go online, so does our information…
If you want to grocery shop from afar, go to virtual school or work, watch the newest movie, or pay for anything online, you have to fork over your personal data. And invariably, those company networks are hacked.
With more of this information available, the hackers have to be drooling. It may as well be Christmas in their world. A friend who works for a cybersecurity firm has told me the scams and attempted intrusions are already off the charts. He said because so many people are working from home for the first time, they’re even more susceptible to attacks because they don’t have business firewalls in place.
It’s so bad that criminals are using a fake coronavirus outbreak map that mimics Johns Hopkins University updates to install malware on personal computers. And these same hackers will see government relief efforts as bonanzas for theft schemes. They’ll steal personal information from unwitting victims.
All of this should be to the benefit of cybersecurity companies. Names like Palo Alto (PANW), Cisco, F5 Networks (FFIV), and Proofpoint (PFPT), among others should see an increase in business demand. That should also boost exchange-traded funds (“ETFs”) like the First Trust CyberSecurity Fund (CIBR) and ETFMG CyberSecurity Fund (HACK).
‘Normal’ Won’t Change These Trends
At some point, this situation will pass. Science will discover a remedy for the outbreak. It’s likely this becomes a seasonal ailment like the flu. It will require a new shot for us to take on an annual basis. But it has and will change our lives forever.
Common actions like the handshake may no longer be viewed as necessary. Working from home and virtual school will likely see a greater uptake. Our lives will be more technology dedicated. And the trends we’re seeing right now are a vision of what’s to come.
Disruption is changing the game right before our eyes. The explosion of data has gone from an unstructured to a structured environment quickly. These trends will allow fewer companies to establish a dominant industry position. The question is… are you prepared?
C. Scott Garliss is the editor of Stansberry NewsWire – where he and his analysts scour the markets to offer you a better understanding of the forces driving market volatility… and recommend the best ways to trade that volatility. He has spent 20 years trading for some of the top investment banks in the country, including First Union Securities, Wachovia Securities, Stifel Nicolaus, and FBR Capital Markets.