Although sometimes it's tempting to curl up under grandma's quilt and not face the world during the current health crisis, for the observant investor, opportunities are there for the taking.
Even with stay-at-home orders in place, people still want to find joy in eating and drinking, while keeping their environments germ-free and loved ones protected. Let's look at three companies that offer investing opportunity even during the COVID-19 crisis.
Recycling bins filling faster during pandemic
Although it has beer in its name, Boston Beer (NYSE:SAM) made it onto this list because of a different product in its stable: Truly Hard Seltzer. As it happens, growth in hard seltzer is skyrocketing.
During the five-week period most affected by the coronavirus as measured by Nielsen, beer sales grew by 18%, but hard seltzer sales grew by over 300%. Seltzer is counted in the beer category, so beer's performance over the period is weaker than it appears.
The current No. 1 hard seltzer, with 58.6% market share, is White Claw, made by privately owned Mark Anthony Brands. No. 2, with 21.8% market share, is Truly, made by Boston Beer.
"Since early January, Truly has accelerated its velocity and has maintained its market share, while other national hard seltzer brands have ceded share," according to CEO David Burwick in the April 22 earnings release conference call.
Cowen and Company analyst Vivien Azer sees Truly gaining market share in the future since the brand appeals to higher-income females, helping to set it apart in the marketplace. She raised her price target to $570, implying an 18% upside.
With a forward price-to-earnings (P/E) ratio of 45 and a price-to-earnings-growth (PEG) ratio of 1.50, investing in Boston Beer requires a firm conviction. But hard seltzer is proving that it is not a fad, and Boston Beer has carved out a leadership position early in the game.
I think investors should watch Boston Beer in May and would do well to build a position on pullbacks.
Convenience and safety power restaurant success these days
One of the most common sentences uttered during the stay-at-home period might be "Let's just order pizza." And more often than not, that order goes to Domino's Pizza (NYSE:DPZ). In fact, the company has been swamped with so much delivery and takeout business that it has been working on hiring 10,000 new workers nationwide during the COVID-19 crisis.
A driving force behind consumers' choice of Domino's has been the company's sensitivity to virus transmission fears. The nationwide company quickly adapted to the "new normal," working immediately to change how it does business. Due to coronavirus concerns, Domino's implemented a 100% contact-less delivery and pick-up model as well as stringent supply chain rules to protect the product.
"We're a 60-year-old brand that has rewritten most of our standard operating procedures in the last six weeks," said CEO Richard Allison on April 23.
Domino's early investment in technology is paying off. Domino's AnyWare is a suite of ordering technology that gives customers 15 digital ways to order. In the U.S., 65% of Domino's orders originate via digital channels, including Apple Watch and Twitter, as well as its proprietary ordering app. Internationally, more than 90% of Domino's markets offer online ordering.
On April 23, Domino's reported first-quarter 2020 earnings. Total revenue for the first quarter was up 4.4% year over year, and diluted earnings per share (EPS) was $3.07, increasing 39.5% over the prior-year quarter.
Domino's Pizza share price has risen 28% this year, eclipsing the S&P 500 Index loss of 9% for the same period.
Time will tell if Domino's can keep up this blistering pace once the crisis has passed. I think the company will keep much of the market share gained due to the contact-less delivery and customers getting used to the technology that makes ordering so convenient.
As the economy starts to reopen in May, investors should keep a careful watch on Domino's stock. I think it still has plenty of room to run, and starting a position in Domino's is a solid choice.
Everyone wants to clean up their act
Clorox (NYSE:CLX), the cleaning and consumer products company, saw big increases in first-quarter 2020 when it reported May 1. Its virus-killing products have become must-have items in households and businesses alike during the health crisis, and it's doubtful that will stop anytime soon.
The company reported a 15% quarterly sales increase over last year. Revenue of $1.78 billion was for the quarter, beating consensus estimates of $1.69 billion. Diluted quarterly EPS jumped 31% from last year, coming in at $1.89 a share.
Guidance for the fiscal year ending June 30 was increased. The company now expects annual sales growth of 4% to 6%, up from its prior forecast of roughly flat sales. It also expects 6% to 9% growth in EPS, which was previously estimated to decline 1% to 3%.
Clorox saw sales and earnings growth in all of its business segments, with the largest increases in cleaning products. Its cleaning product sales grew 32% from last year, and its pre-tax earnings grew 71%.
Demand for germ-free environments in the time of COVID-19 has fueled rapid growth for Clorox products. What happens after this scary time passes? I think demand will stay strong for many years to come as the world has become much more sensitive to the cleanliness of its surroundings as well as the health consequences if one's guard is dropped.
Clorox is another solid company to keep an eye on as it adapts to higher demand and competition tries to rise up. I think Clorox will ultimately prevail over all others as the preferred brand in the consumer and commercial markets. The company has a P/E ratio of 30 compared to the industry average of 29. Clorox is a solid choice for investors to watch in May, and it's a buy on pullbacks.