These companies are benefiting from the Coronavirus

I had a thumping headache and every muscle in my body was aching. I was at the stage where I had completely lost my appetite. Campbell’s Mushroom Soup was the only thing I could stomach.

1995 was the worst Christmas ever.

I had the flu.

My mother always made sure we had a tin or two in the pantry. But this Christmas she had bought enough Campbell soup to survive a zombie apocalypse.

Fast-forward 25 years later and people are stocking up once again.

Don’t bother trying to buy face masks, wet wipes or hand sanitiser. I walked past this pharmacy in Zurich a couple of days ago.

There is no time to think rationally. Fear of the Coronavirus has gone pandemic. Soup, disinfectant and video games are being bought in vast quantities as people prepare to self-quarantine themselves from the Coronavirus.

Yet, where there’s fear, there’s money to be made and some companies are expected to benefit.

Here’s a snapshot:

Campbell Soup has experienced its best share price gain in two decades (I’m not surprised).
US group Kroger, which operates convenience stores, has been the second-best performing stock since the correction began.
Clorox, which makes popular disinfectant wipes has seen its share price rise 7%.
Electronic Arts, the famous video game maker has managed a moderate 0.4% gain, against torrid market conditions.

Despite all the market turmoil, there’s always a bull market somewhere.

Oh, and don’t forget the winners in the medical industry.

Take biotech company Gilead. It could potentially sell its anti-viral drug Remdesivir in April, if it gets approval. This drug was developed to tackle the Ebola and MERS viruses, and it could be used to treat Coronavirus patients.

They have already started clinical trials with Coronavirus patients. The first was a US citizen who was infected while on board the Diamond Princess cruise ship. Although it is far too early to say whether this drug will provide an effective treatment, the company’s share price has rallied strongly since the Coronavirus outbreak.

These companies form what’s now being called the Corona-trade because of the positive performance they’ve delivered. However, re-positioning a portfolio and investing in these stocks, might not be the best course of action.

During periods of fear, stock fundamentals get forgotten. And this is no different for the Corona-trade stocks, even if their stock prices have risen.

If you look at Campbell Soup for instance, despite the Coronavirus possibly boosting its revenues, the company still has a huge amount of debt on its balance sheet. In 2018, it acquired Snyder’s-Lance for a huge $6.1 billion.

It’s going to take a long time to pay off this debt pile and the interest expense incurred from this will hurt margins. In fact, the company’s profit margin fell from 15.2% in 2017 to just 2.6% in 2019 because of this transaction.

This doesn’t mean, however, that there won’t be long-term winners from the Coronavirus.

The rise of e-commerce

E-commerce is the best example of a long-term trend that’s received a boost from the Coronavirus.

The Coronavirus has altered consumer behaviour significantly. It’s encouraging consumers more than ever before to shop online and avoid the physical shopping environment. This event could help hasten the demise of bricks-and-mortar stores in favour of online shopping.

So far it has been technology that has allowed e-commerce to advance. However, the Coronavirus has added new sociological factors to the mix, which may speed up the development of this industry.

Disrupted supply chains, the threat of recession, lower industrial output and fear could alter purchasing habits permanently in favour of e-commerce.

We won’t necessarily see this trend play out in the short run. The surge in online orders has also heaped pressure on e-commerce businesses to fulfil them. While the demand for products is there, the supply of them might be limited.

However, over the longer run, e-commerce companies might be able to capitalise from the added brand equity that they have developed during this crisis.

This perhaps is where the real long-lasting profits will be made.

I have no positions in any stocks mentioned, and no plans to initiate any positions. I wrote this article myself and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. This is neither an offer nor a recommendation to buy or sell securities. The points presented in this article are estimates and opinions.