You could ask 100 different analysts what they think about buying and selling stocks during COVID-19, and you might just get 100 different opinions. That's what's great about tracking hedge funds. You can see where the smart money is being put, and you can see if managers put their money where their mouth is. If you have $1,000 to invest, now could be a great opportunity to start a new position, and billion-dollar hedge fund managers have been scooping up shares of IDEXX Laboratories (NASDAQ:IDXX), Goodyear Tire (NASDAQ:GT) and Starbucks (NASDAQ:SBUX).
Pet love during the pandemic
You may not recognize IDEXX Laboratories, but if you're a pet owner there's a chance you've crossed paths with its products or services already. IDEXX is a leader in pet healthcare innovation, with a list of diagnostic products and services that enhance the ability of veterinarians. Here are some reasons why Bridgewater Associates, a fund with over $5 billion in portfolio value, might have scooped up shares during the first quarter.
IDEXX is one of a few stocks to outperform the S&P 500 over the past three months as COVID-19 swept the globe, but the company expects to feel some pain during the second quarter, as some people deferred animal care. That said, there is an intriguing trend taking place that could actually be a boost for IDEXX post-COVID-19. Animal adoption and fostering of shelter pets has increased during the pandemic, and these newer pet owners will almost certainly need to use pet healthcare. Already, Americans' spending on pets just hit a record high $95.7 billion in 2019, and at no point over the past 25 years has there been a year-over-year decline in U.S. pet industry expenditures.
In addition to rising adoption and additional pet owners, IDEXX's intangible assets could improve as veterinarians across the U.S. turn to the company for helpful products and services to keep veterinarians and consumers safe during COVID-19. IDEXX boasts a cost advantage thanks to its network of reference labs, and has a competitive advantage from switching costs -- both advantages that will help weather the COVID-19 storm. Here's what we know to be true: Americans love their pets and they are spending more on them than ever. That means IDEXX has a long-term growth story that COVID-19 can only temporarily slow.
Stuck in neutral
While IDEXX Laboratories outperformed the S&P 500 over the past three months, Goodyear Tire, a manufacturer of tires for automobiles, trucks, and aircraft, has spiraled lower with its Americas and Europe manufacturing temporarily suspended. Analysts are predicting double-digit drops in automotive production and sales for the full-year. As if that wasn't bad enough, more Americans stuck at home for social distancing means fewer tires on the road and fewer miles traveled -- bad news if you're a company selling tires. Perhaps buying when others are fearful is why Appaloosa Management's manager David Tepper started a position in Goodyear Tire during the first quarter.
With COVID-19 keeping cars off the road, and a plateauing North American auto manufacturing market, it's easy to be pessimistic about Goodyear Tire. However, the company could be oversold because many investors don't realize the majority of Goodyear's sales are from replacement tires, rather than from major automotive manufacturers. Furthermore, the company has also turned its focus to larger than 17-inch tires, which offer much larger profits than smaller tires. In fact, the industry estimates that the profit margin per tire for a consumer replacement larger than 17 inches is almost four times larger than consumer replacement tires smaller than 17 inches.
Goodyear Tire certainly hit a speed bump with COVID-19, and its second-quarter financial results will be rough. However, the company could be oversold considering the following: Its global manufacturing facilities will be coming online soon if they haven't already, it has a growing larger-than-17-inch tire business, it has $3.6 billion of cash and available liquidity to weather COVID-19, and it's seeing favorable trends in prices versus raw material costs.
Still a growth story
Starbucks is certainly a household name in the U.S., and it's absolutely the leading specialty coffee retailer, but that doesn't mean the company is all out of growth stories -- far from it. Not only does it still have a growth story, the company will be far better positioned to survive COVID-19 than smaller competitors, and those two reasons could be why Ken Fisher and his Fisher Asset Management fund scooped up a chunk of shares during the first quarter.
Let's get back to the growth stories. Long-term, the king of coffee still has plenty of international growth potential in emerging markets and can even grow into new channels with new platforms and products. Heck, it still has a U.S. growth story, as it could build new store formats such as premium location, drive-thru only, and kiosks, among other ideas. There's also menu evolution with new cold beverages, health and wellness options, and even new delivery partnerships.
What's also great about buying Starbucks at a time of uncertainty is simply the company's massive scale and liquidity to not only weather the COVID-19 storm, but to apply even more pressure to smaller competitors with more competitive prices. The stock markets will rebound, but not all companies will survive the near-term effects from COVID-19. However, you can invest in Starbucks and still sleep well at night.
COVID-19 has been a tragic development for the entire planet, and its financial effects will be heavily felt during the second quarter. With stock market volatility and an ample amount of uncertainty facing investors, if you have $1,000 to invest right now, IDEXX, Goodyear Tire, and Starbucks are being scooped up by billionaire hedge fund managers. It's not difficult to see why.