The course of the COVID-19 pandemic is proving impossible to predict, frustrating both health officials and governments as they struggle to keep the economy alive amid a resurgence of cases. It seems impossible to know for sure, but some people believe the United States will see an even bigger wave of infections this fall.
Meanwhile, the stock market seems remarkably optimistic about the future, with the S&P 500 less than 5% below its all-time high, seemingly looking beyond the severe damage to the economy and the possibility that we have yet to see the worst.
What should investors do if they are concerned about short-term risks? For long-term growth investors, this volatility will fade over time. However, some investment issues could lessen the risk of temporary setbacks due to increased COVID-19 decline and at the same time allow investors to participate in promising growth opportunities. Here are four topics to consider.
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Reliable cash flows
In times of economic uncertainty, investors often look for companies with strong cash flows that are unaffected by the threat of the moment. Public service actions fit this profile, as governments grant them monopolies in exchange for a high degree of regulation. The market recovery since March has been characterized by high growth demand from investors, and the public services sector has largely lagged behind, with the Vanguard Utilities ETF 6% less in the year.
A utility action that combines high operating cash flow with a strong growth component is NextEra Energy (NYSE: NEE). The company operates two electric utility companies in Florida, which generate reliable cash flows, and a growing business at NextEra Energy Resources, which is the world’s largest generator of solar and wind energy. NextEra is also testing the potential for hydrogen generation, announcing plans for a $ 65 million pilot plant and saying it is evaluating other potential hydrogen opportunities.
Electric power demand was unaffected by the pandemic, and NextEra’s adjusted earnings per share grew 11% in the second quarter. The stock was hit along with almost everything else in March, but has since recovered, and I believe strong trading performance during the first wave of the pandemic will support stocks in a second wave. The stock has a 2% dividend yield.
Strong trends endlessly by the pandemic
Some trends existed long before COVID-19 appeared, and continue to provide investment opportunities that are not affected by the pandemic. The implementation of 5G telecommunications equipment is a good example. The massive deployment of equipment to increase the data capacity and speed of the world’s cellular network is still in the early days, and if anything, the pandemic is only accelerating demand for bandwidth.
A conservative way to invest in 5G is to buy shares of tower stock, such as American tower (NYSE: AMT). Cell phone operators are struggling to keep up with the demand for data bandwidth by putting more 4G equipment on American Tower’s cell towers, increasing rents for the Real Estate Investment Trust (REIT). But 5G is also becoming a powerful tailwind for the business. With the merger of Sprint and T Mobile In its entirety, American Tower expects a significant investment from the merged operator in the second half of the year as it develops its 5G network.
American Tower did very well in the first half of 2020, relatively little affected by COVID-19 and increasing revenue by 10%, while increasing the dividend by 20%. The stock is a way to avoid exposure to the unknowns of the coronavirus, it produces 1.6% and should grow in the years to come.
Where the pandemic is not
Investors uncomfortable with the COVID-19 course in the US might consider putting new money into companies that operate in areas where a resurgence seems less likely. China appears to have quelled the pandemic by now, and its economy has returned to growth.
Giant Shares Online Tencent Holdings (OTC: TCEH.Y) They’ve risen 64% from their lowest level in mid-March, but still have plenty of room to run. Stock is a great way to participate in the growth of social media and digital life in China. Tencent has the most important messaging application in the country, the best online gaming platform and, according to user count measures, leadership positions in video, news, music and mobile payments.
The pandemic did not stop the company much, even when China closed in the first months of the year. In the first quarter, revenue grew 26%, thanks in part to a 32% increase in online advertising, and earnings increased more than 30%. Analysts expect full-year revenue growth of 23%, and a second wave of COVID-19 in the United States will not touch that.
COVID-19 Investment Issues
An obvious approach for investors anticipating a revival of COVID-19 is to simply invest in the issues that worked the first time. Shares of companies in the markets related to remote work, e-commerce, home entertainment and biotechnologies working on vaccines and treatments for coronavirus could continue to work well.
On the other hand, I think many of these actions have already taken place and will not be as strong in the second half of the year, even if the pandemic becomes uglier.
However, one eCommerce action that I think still has a lot more to go is Prologis (NYSE: PLD), a REIT that specializes in logistics properties such as warehouses. The pandemic produced interruptions in the supply chain and an unexpected increase in electronic commerce. Supply chains are still in disarray, and companies that are moving rapidly to increase direct-to-consumer capacity need storage space, as do their suppliers.
Logistics capacity will continue to be in strong demand for many quarters, whether there is a second wave of a pandemic or not, and recent results show how Prologis is benefiting. Core operating funds per share, a measure of the cash flow the company uses to assess its performance, increased 44% in the fiscal second quarter, and the company outlined a year-round guide. Management said rental collection trends are strong, leasing activity is high, and the shortage of logistics space will lead to between $ 800 and $ 1.2 billion in new construction of logistics facilities in the second half.
Prologis shares are up a modest 20% for the year and yield 2.2%.
