Physical Address
304 North Cardinal St.
Dorchester Center, MA 02124
3 Stocks Poised to Outlast the Pandemic
Since early spring, thousands of businesses have shuttered nationwide and millions of people have lost their jobs, vaulting the unemployment rate to highs not seen since the Great Depression.
Against this backdrop, policymakers and lawmakers have delivered trillions of dollars in stimulus (with more possibly on the way), which resulted in the equivalent of roughly 80 days of economic activity, according to our internal research.
That jolt helps explain why after cratering on March 23, the S&P 500 is up by more than 49% at the time of this writing, confounding market watchers who believe it’s impossible to reconcile that type of increase with the current jobs picture.
Investors, though, have been willing to look beyond the near-term economic damage to focus on companies with promising futures – firms that began laying the groundwork for growth before the downturn started. This leaves them poised to take advantage of opportunities once the landscape normalizes.
It’s a stock picker’s market and the responsibility of investors to find companies with business models and strategies that allow them to thrive. Here are a few possible examples.
Chipotle Mexican Grill (ticker: CMG)
Chipotle’s share price has more than doubled in value since markets cratered in mid-March. In large part, that move has been powered by the promise of its tech infrastructure.
Digital sales grew 216% during the second quarter compared with the same period a year ago and made up about half of all sales through the first few weeks of July, according to Chipotle’s most recent earnings report.
While most of the competition has scrambled to adapt to the reality that pickup and delivery now dominate food service, Chipotle was well-positioned to meet the shift thanks to previous investments made to accommodate mobile orders.
Though earnings are down considerably from last year, the company recently announced that it plans to hire 10,000 additional workers and it opened 37 new stores during the second quarter, while closing three of its locations. These are clear signals that it plans to use this downturn as an opportunity to expand business.
Spotify Technology (SPOT)
Spotify’s second-quarter earnings missed expectations, largely because advertisers pulled back as the ongoing pandemic poses questions about the broader economy (though ad spending began to recover in June). That’s the bad news.
The good news is that the company continues to add customers at a strong pace. Its monthly active users grew by 29% during the quarter, while premium subscribers rose 27%.
Spotify recently acquired the rights to “The Joe Rogan Experience,” one of the most popular podcasts in the country, signaling a strategic shift for its business. Podcasts have higher margins than music streaming because listeners tend to stay engaged for longer periods, which typically translates into more advertising dollars.
Another critical point is Spotify’s churn rate, or the rate at which paying customers fail to renew their subscriptions. It’s relatively low, finishing last year at 4.8%.
The Walt Disney Co. (DIS)
With theme parks closing and movie releases getting pushed back, few companies were as impacted by the shutdowns as Disney. The pandemic cost Disney a net income loss of $4.7 billion from continuing operations in its second quarter. It’s the company’s first quarterly loss since 2001.
On a more positive note, Disney+, the company’s much-anticipated streaming service, has surpassed 60 million subscribers, a jarring number for a platform launched less than a year ago.
Investors seem positive about Disney’s streaming service, which sent the stock rallying by nearly 12% since its second-earnings report on Aug. 4.
The Takeaway
With more stimulus likely on the way, including possibly a fresh round of direct payments and an extension of unemployment benefits, stocks could remain more resilient than some underlying data would suggest.
While that may seem irrational to some, markets are still generally guided by fundamentals, especially at the company level. So, even as there is plenty of reason to be skeptical of vast swaths of the market with the pandemic flaring up in some areas across the country, others could be more resilient.
