The COVID-19 pandemic has had such a drastic impact on lives and the economy that it will no doubt reverberate in our culture and affect our thinking for years. Investors trying to assess the damage of shutting down businesses and keeping consumers confined to their homes are largely looking ahead to the next few weeks when the economy is expected to reopen, but what about the long term?
Long after COVID-19 ceases to be a daily threat, the pandemic will be impacting the behavior of consumers, businesses, and politicians. Certain trends that were already underway will accelerate, and new ones will emerge. Here are five areas I think will have lasting effects from the pandemic, along with some resulting growth stock opportunities right now.
1. Online buying will accelerate
The most obvious impact of the stay-at-home order is that the long-term trend of e-commerce has picked up even more steam. Consumers that haven't done much shopping on the web in the past -- yes, there are some in the world -- have gotten more comfortable ordering online during the sequester, and experienced shoppers have discovered new sites to visit and new things to buy that they formerly picked up in physical stores.
Image source: Getty Images.
From a business perspective, the sellers of goods that already had a strong online business, such as Target, are going to come through the crisis in the best shape, and those that didn't are realizing that they need to step up their e-commerce game to survive. The titan of online markets, Amazon, should continue to do well, but I think the best opportunities are with companies that will profit as the rest of the business world accelerates their efforts to strengthen their online channel.
Shopify (SHOP 3.33%) is growing leaps and bounds as it enables businesses from mom-and-pop operations to giant corporations like Staples and General Mills to sell online. The company provides a software that implements a complete e-commerce channel, including logistics that allows the seller to offer shipping options that are competitive with Amazon. The stock has soared in recent days, leading a lot of investors to think that it's gone too far and it's worth waiting for a better price. Of course, some of the same investors were worried about the same thing when the stock was selling for one-fifth of what it's selling for today.
There are cheaper investment options to take advantage of this trend. All those goods moving through the online channel need to be stored and packaged along the way, so that's where Prologis (PLD 2.58%) comes in.
Prologis is a real estate investment trust (REIT) that specializes in building and leasing logistical real estate such as warehouses and fulfillment centers. The company's customers range from small suppliers of consumer goods to the biggest retail giants, including Amazon, Walmart, and Home Depot.
The pandemic is creating some challenges for the company, such as smaller customers who need loans in order to cover their rent. But business was surprisingly strong in the quarter that ended March 31, with core funds from operations rising 14% from the period a year earlier.
Prologis sees two long-term, durable changes coming from the pandemic that will result in higher demand for logistics real estate. First is the acceleration of the shift from brick-and-mortar to e-commerce retail. The second is that the shortages caused by the shock will lead to companies keeping higher levels of safety stock in inventory, essentially trading off some efficiency for more resilience in the global supply chain. The stock pays a 2.7% dividend yield as well.
2. The healthcare debate will resume with a vengeance
The system of health insurance in the U.S. was in the foreground last year as democratic presidential candidates made the issue central to their campaigns. With some of the candidates pushing the more drastic proposals dropping out of the race and the national consciousness focused on COVID-19, the issue isn't making headlines at the moment, but you can bet it'll come roaring back as the fall election nears.
The pandemic only makes the discussion more important. The system in our country is centered on employer-supplied health plans, and with unemployment taking an unprecedented jump, plenty of workers are caught worrying about coverage at a time of a major health threat. The simultaneous threats to insurance coverage and health is going to add a lot of passion to the debate, and change could be on the way no matter who wins in November.
The market is dismissing the odds of a move as drastic as Medicare for all, but tweaks to the system are likely, and one beneficiary could very well be HealthEquity (HQY 2.00%). The company is the leading provider of Health Savings Accounts (HSAs) and administers them on behalf of employers and health plans. HSAs lower healthcare costs and are likely to be a part of any market-based approach to healthcare reform. HealthEquity also benefits from rising interest rates since it makes money from the uninvested funds in member accounts. So, when rates return to more normal levels as the economy recovers, HealthEquity will get a boost to its earnings.
3. Remote medicine will go mainstream
The COVID-19 pandemic has brought remote medicine into the spotlight, with medical systems being overwhelmed and patients understandably reluctant to sit in waiting rooms during a pandemic. The obvious beneficiary of the need for telehealth during these weeks of coronavirus crisis is the largest global supplier of virtual healthcare services, Teladoc Health (TDOC 0.78%).
Teladoc recently confirmed an "unprecedented surge in demand" for its services, saying that the number of virtual medical visits per day in the U.S. have more than doubled since the first week of March, and that it expects revenue in the first quarter to be up 40% from the year before.
There were already plenty of reasons for long-term investors to buy the stock before the pandemic, but now add to that the likelihood that patients will feel more comfortable with the service after having tried it, and that a growing number of health systems and healthcare providers will realize the cost benefits of promoting virtual healthcare.
Teladoc may be the most visible stock in remote medicine now, but medical device makers are moving in that direction as well, and some quality growth stocks could get a boost from the trend.
Masimo (MASI 0.02%) has a growing business making pulse oximeters, devices that measure blood oxygen levels that have been critical to monitor in patients with serious cases of COVID-19. The company is pushing into the home with devices for remote monitoring of blood oxygen, with the first application being monitoring patients on opioid pain medications for signs of respiratory depression.
Respiratory therapy company ResMed (RMD 0.85%) also sells connected devices for the home and sees as one of its biggest growth areas software for monitoring home medical equipment of various kinds for remote use by care providers.
4. Consumers will prioritize disaster readiness
Few people were ready for a widespread disaster like the novel coronavirus. But when it started to become clear that the disease was going to endanger our freedom of movement, there was a mad scramble for the type of supplies that you would want at home if you were going to be stuck there a while.
Some investors may think that a change in consumer mindset may be a long-term benefit to consumer staples stocks such as Procter & Gamble (PG 0.14%). There may be reasons to consider that stock, but I don't think the burst in demand for toilet paper and disposable diapers is a good one. The country's inventory of these items simply moved from warehouses to closets, but they're still being used up at the same rate.
However, I think the mindset of being ready for the next disaster is going to stick in people's minds for a long time. Most disasters are due to localized phenomenon such as earthquakes, fires, floods, hurricanes, or tornados. The pandemic may spur people to take steps to be ready for the next emergency, something that they'd been meaning to do but never got around to. One company that could benefit from this is Generac Holdings (GNRC 6.78%).
Generac makes residential and commercial standby generators, an essential piece of equipment for people seriously prepping for disaster. The company's business gets a boost anytime there's a major hurricane, and picked up a huge tailwind from the disastrous wildfires in California. The fact that power could be shut off over large areas of that state whenever the wind picks up and fire conditions are dangerous will continue to favor Generac's business.
5. The return of the road trip
Once danger from the virus subsides and stay-at-home orders are lifted, families are going to be seeking a cure for cabin fever and will want to get away for a vacation. The idea of a "staycation" at home is not going to have much appeal, but I'm willing to bet that there won't be much of a rush to cruise ships or crowded casinos for quite a while, either.
The consumer mindset about vacations may take a longer-term shift in favor of the outdoors and trips that can be made with just the family or smaller groups of friends. This could work in favor of companies selling recreational vehicles, camping equipment, or outdoor accessories.
The world's largest manufacturer of recreational vehicles is Thor Industries (THO 4.39%), a well-managed company that sells leading RV brands such as Airstream, Four Winds, and Jayco. The company has been digesting a major acquisition and dealing with a slowdown in retail RV sales in the U.S., but had been optimistic about improving industry conditions in 2020 before the pandemic struck. The company faces supply chain disruption and a recession now, but recovery and higher demand from a trend toward road trip vacations would get the stock moving again.
Other companies that sell consumer products for enjoying the outdoors may benefit, too. YETI Holdings (YETI 3.78%) is a small cap stock with an outdoorsy lifestyle brand that was growing rapidly before the pandemic had people living indoorsy lives for a while. The stock has taken a hit, but a rebound will eventually happen, and the potential is there for an even stronger boost if consumers rethink the way they take vacations in the post-pandemic world.
