Best Investing Tips for a Post Covid Economy
Predictions for the market in the post-pandemic economy are strong. There will be shifts in investor spending that reflect the new world view. Companies offering services specific to the pandemic went through a major boom. Some will see a downturn, but not all. High share prices are pushing investors to consider a different path.
The strategy for many investors is assessing the bounce-back of industry sectors impacted by COVID. Global supply chain issues are beginning to resolve. Investing in commodities is less risky, even in the most battered sectors. Investments in oil and steel are already on the rise.
Consumers have embraced COVID technology wholeheartedly. The pandemic expanded a service market during lockdowns. Food delivery services and eCommerce are expected to continue in popularity. Telemedicine is now mainstream and will continue to remain strong. Companies like Zoom are largely dependent on remote work and the lack of in-person conversations. They aren’t going away, but the strength of their performance is variable.
There is money to made in 2021 and bargains to be found. The foundation of a post-pandemic investment strategy is two-fold. What stocks will maintain their trajectory and what stocks will rise from the ashes?
What to Watch
Companies’ investment overseas, especially in China, may shift course. Instability in their geopolitical stance makes the country a volatile partner. Smart manufacturing firms are considering a more stable supply chain. Mission-critical industries, such as healthcare, will need to consider increasing domestic capacity. Off-shoring has always been driven by reducing cost. Returning to domestic production will likely prompt a rise in CAPEX and OPEX.
Sustainable investing maintained its yield during COVID. There is growing evidence of climate change, heatwaves, drought, and wildfires. This could push more investors toward alternative energy investment. That could have a major impact on oil and traditional energy investments.
At the G7 summit in 2021, there was a discussion of a 15% global tax rate. The U.S. and countries in the European Union have not yet reached an agreement. As more companies look to avoid taxes by operating outside their home countries, this should be watched closely. If it becomes law, it’s unclear how global corporations will respond. Their options could be limited to countries with less stable governments or limited talent.
Corporate debt soared during COVID. Even as sectors rebound, investors must consider if the company is too illiquid to survive given the red ink on their books. Ford Motor Company, for example, offered billions in junk bonds to cover its debt but is still considered a risky proposition two years later.
Industries Ripe for Post-Covid Investing
Here are some of the areas where investors can expect to see growth. While nothing is guaranteed, there are reasons to consider these industries as optimal investments.
COVID produced marked changes in consumer healthcare. Access to medical care was embraced by all age groups, including seniors. For the homebound or disabled, telemedicine creates opportunities to maintain independence and well-being. Doctor-on-demand apps have increased accessibility. New subscription and direct-pay models were created and embraced. Younger consumers made their preferences known. Access to a doctor is more important than seeing a specific doctor. Telemedicine disrupted the healthcare delivery system and it will remain strong.
Beyond consumer-based care, other sectors in the healthcare industry expect to see growth.
Genomics: The first clinical trial to edit the human genome occurred in 2021. The potential to eliminate disease by removing the genetic cause has mind-blowing potential. It’s a healthcare market shift from disease treatment to disease prevention. It’s closely related to personalized medicine, upending the concept of one-size-fits-all treatment plans.
(Read: What is Precision Medicine?)
Biopharmaceuticals: Biopharmaceuticals are medicines made from living cells, some as tiny as 22 molecules. They are either new, innovative medicines or a biosimilar that corresponds to an existing drug in the market. The products turn cells on and off in relation to specific diseases. Cancer patients are prime candidates.
- Cytokines: Affects communications between cells
- Monoconal Antibodies: fights diseases
- Enzymes: Speed up biochemical reactions
- Immunomodulators: changes immune response.
The lifecycle of FDA review and approval is a current roadblock for investment, but this industry is poised for significant growth.
Artificial Intelligence: AI technology plays a growing role in healthcare. It enhances the accuracy of diagnosis and improves the treatment process. A company called DarwinAI developed a 96% accurate model for detecting COVID in CT scans. AI has been successfully used to pre-identify patients at risk of stroke and alerts them to possible indicators. Robotic surgery is another application. Telehealth data from remote monitoring devices can be analyzed by AI algorithms as a preventative measure. Companies are applying AI models in drug discovery to shorten time to market.
Healthcare investors should look for innovative solutions that improve health outcomes and support a positive customer experience.
As the demand for connectivity continues, telecom companies are poised for post-covid growth. Wireless service providers and their data centers will expand their capacity as companies and consumers need more.
Service Providers: The 5 largest global telecom companies (by market cap) are ATT, Verizon, Nippon, Deutsche Telekom AG, and T-Mobile. The stocks play out across all tiers, value stocks, growth stocks, and for income investors. Expect to see mergers and acquisitions play a role in growth. These stocks can be purchased individually or through index funds and EFTs.
Driving 5G: 5G is a significant upgrade to current WIFI standards. 5G systems have ultra-fast response times and can carry massive amounts of data. Datacenter infrastructure purchases will rise to $8 billion globally. Telcom service providers will invest more than 20% of their revenue on the upgrade by 2020.
Investors can expect to see an initial rise in CAPEX expenditures, but 5G connectivity will quickly become the norm. The revenue from collocated datacenters and cloud hybrid systems is expected to increase by 5 to 10%. Corresponding industries for new construction will see a boost as well. More fiber optic cables are required and new tower construction will be needed.
Housing is always a priority. Companies that build developments and sub-divisions are expected to see revenue grow in 2021.
Individual Stocks: Homebuilders have industry segments. Some cater to first-time homebuyers or buyers wanting to upgrade. Others specialize in luxury homes. Companies like KB, LGI, or Lennar are the free largest homebuilding stocks in the market. They target specific geographic areas – one of the trends to follow before you buy. States like North Carolina, Texas, and Arizona are prime markets right now.
REITs: Real Estate income Trusts offer easy entry into the real estate market. REITs invest in income-producing real estate. There are multiple types: Retail, Residential, Office, Healthcare, and Mortgages. Healthcare REITs invest in hospitals and medical centers and are a sector to watch. Retail and Office REITs involve commercial real estate and may not the best for investors right now. Mortgage REITs invest in financing vehicles, like Freddie Mac and Fanny Mae. REITs offer high yield dividends and are required by law to distribute 90% of their earnings to account holders.
Marijuana has gone mainstream. More and more states are legalizing the plant for medical and recreational use. The industry also includes CBD oils and edibles as well as hemp products. Even in locations where marijuana is not legal, startups are setting for what they see as inevitable.
Marijuana Dispensaries: Marijuana is sold as two separate commodities – Medical and Recreational grades. Though it remains a controlled substance at the federal level, these states have legalized or decriminalized it. Medical marijuana stocks may have less risk than recreational use. But cannabis stocks dropped a bit in the past few months and can be picked up at value prices. Here’s a list of offerings on the NASDAQ
CBD Products: Called the Cannabidiol market, global demand for CBD products reached $2.8 billion in 2020. The industry is expected to grow, but supply chain issues remain a problem in the U.S. The FDA hasn’t approved the harvesting procedures for hemp or oils. CBD products do not contain THC, the compound in marijuana that creates the high. It may be best to invest internationally. Europe and the Asia Pacific regions are strong growth markets. The U.S. market might offer some value stocks and will grow after the inevitable FDA approval.
Investments to Avoid
Cultural changes after the pandemic could mark the end of some companies or industries. Here are a few of the areas you might want to avoid.
- Retail REITs: We mentioned this briefly earlier. Brick and mortar retail is a highly challenged industry. The convenience of eCommerce isn’t going away. Malls are closing, many retailers have transitioned online. Retail real estate is a no-win investment.
- Airlines: Even as travel resumes, airlines are in a huge hole when it comes to debt. It’s going to take time to dig themselves out. Some may look at them as a value buy, but smart money says wait a bit longer to see how they do.
- TV Ratings: Nielsen was once the player in the game for TV producers to see who and how many were watching. With the rise of live streaming and web-enable platforms – analytics are managed in-house. This company is likely headed the way of Blockbuster video stores.
- Streaming Platforms: At a time when all anyone could do is what TV, streaming service soared. Disney Plus for example hit its 2024 goal of 100 million subscribers in less than a year. The revenue loss on their theme parks and cruise lines was significant. It’s questionable whether they will retain subscriber interest as the world reopens.
- Cruise Lines: Cruise companies are a mess. The PR crisis alone is incredible. They attempted to restart business again – too early in the pandemic. It will take a while before cruise stocks are worth enough to even consider.
- Check Tech: Some of the technology darlings will thrive after the coronavirus, but it isn’t a bet. The talent market is competitive and pricey. Tech offerings specific to the pandemic may be challenged to maintain their customer base.
- Oil & Gas: These stocks are always popular but the pandemic has left some of them swimming in debt. Before you invest, look carefully at their performance and liquidity. For example, Kiplinger says Chesapeake Energy is trading like a penny stock.
Investigate every stock thoroughly before buying or selling. Acknowledge your risk preferences. Balance your portfolio as needed.
Best Investments After COVID
Though the post-pandemic economy looks bright and investors can expect a bull market to continue. But some industries will recover faster and stronger than others. Many companies added staff and increased CAPEX during COVID, especially in the tech sector. Some will transition to the post-pandemic economy and others will not.
Healthcare stocks are likely a good bet. Most anything medical-related is viable, especially emerging technologies applying AI or cutting-edge innovations. 5G technology will drive investment in telecoms but pay attention to liquidity. Investors set consumer usage aside and explore the underlying infrastructure of data centers.
It’s obvious that the hospitality/entertainment industry will have a big jump. The question is it big enough to pull them back from the brink?
That’s the way to craft your strategy. What companies will thrive without the restrictions of COVID-19 and what companies will fall?
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