A Few Boring & Not So Obvious Trends That May Help You Find Some Stock Market Winners Post COVID-19
Many years ago, when I was home from college one summer, my dad asked me if I wanted to take a trip to a new store with him. I said, sure. We went into the store, and it was not all that exciting to me, but he commented it was well lit, everyone was friendly, and it looked like people were buying things. That was enough for him to do a little research and purchase stock in a company called Tractor Supply Company. How did it go? Well, if you would have put $10,000 into Tractor Supply and Amazon that same day, which investment would have made you wealthier? Tractor Supply by a nose.
While VCs and the media are often chasing super-advanced technologies and complicated trends, it’s often the most fundamental observations that are overlooked and produce exceptional returns. Warren Buffet says, “Never invest in a business you cannot understand.” And the reality is, most of us will never be experts on content delivery networks, gene sequencing, or cloud infrastructure. But, most of us can identify what good things in a business are.
The world will change thanks to COVID-19. And with this evolution, there are some very mundane trends emerging that, if they come to fruition, may help you find some very exceptional investment holdings for your portfolio. And they are quite simple, too.
Cleaning & Sanitizing
The world has gone wild over hygiene, including washing hands with more frequency, washing down surfaces. The world will re-open, and businesses, including offices, restaurants, bars, and sports venues are going to have to go the extra mile when it comes to sanitizing. Organizations that engaged with services to do a deep clean once a week may now see the need to do this daily or even multiple times a day. I feel there is an above-average chance for demand to surge for commercial cleaning services (and products), and businesses that offer these services will see more contracts, more service frequency, and higher margins. This area may see a fast return to regular revenues and may even benefit from some investment excitement if their businesses take off.
The Payroll Protection Program (PPP) may be the first crack in the plaster for the ‘too big to fail’ banks. While I don’t see the big names disappearing, they indeed have shown their hand. A cursory glance at the popular PPP tracking site, COVID Loan Tracker, shows most of the loans doled out so far (at least in the data sample) are from small, community banks — and often these loans were done in far less time than the bigger banks represented. While it’s perhaps been more accessible for small businesses to bank at one of the big names for many reasons, when it counted, the smaller banks served their customers more expeditiously and with more urgency. A community bank in Wisconsin with 260 employees and 27 branches got $65 million of PPP funds to its clients in less than 48 hours from the program opening. That sure beats what the big guys were able to accomplish — especially for the average, small business owner. These smaller banks may see an influx of small business customers that want that attention and be treated like a super important customer, even if their bank balances are not in the 6 or 7 figures. Community banks may have an opportunity to thrive due to this trend and outperform their larger peers. Small businesses with less than $5 million of revenues make up about 95% of the total small businesses in the USA — and of these, about 40% generate less than $100,000 of annual revenues. These businesses that were banking with the larger banks and felt slighted during the PPP application process may decide it is in their best interest to move to a bank that is a little more like them. Will this display of customer service by many of the nation’s unsung community banks prove to be a strategy that drives waves of customers and deposits into their arms and away from the big ones?
People Want to Get Out
Retail is dead, yes? Nobody goes out anymore. Everyone wants to shop online. Indeed, e-commerce is growing, and, in a contactless world, hiding out in your home is a far more effective way of social distancing than going out shopping. Despite our desire for more accessibility and instant gratification that only technology can provide us, it seems everyone is bored to tears and having nervous breakdowns by not being able to go out. Humans are social creatures — and we crave person to person interaction that conference calls and social media just cannot replicate. Be careful what you wish for — you might get it. Now that people are stuck inside, they are clamoring to get out again and be in the world. The investment idea is that people will always want to have places to go — and maybe more so than ever. How about commercial real estate that focuses on housing consumer-facing businesses? The owners of land and building that provide the platform for whatever old and new businesses thrive in the post-COVID-19 world will be in a strong position to collect lease payments. People will want to go out, and they will need safe places to go — and these safe places will need to pay rent and perhaps be a lot smaller than the megastores. Many of these companies’ stocks have taken nosedives as tenants delay rent payments, and fear has set in that people are going to stay in their homes forever. What if people do want to go out still and more so than ever? And perhaps with a preference for smaller stores, we could see higher per square foot pricing. It sounds like a recipe for consistent (and possibly growing) lease payments from in-demand consumer-facing, physical businesses.
Once the airlines open again and travel is 100% allowed and encouraged, it is going to take some time for people to feel comfortable with commercial airline travel. Airlines have also announced many changes in their post-COVID-19 world service offering aimed at keeping everyone safe — and they just do not sound appealing. It just may not be as fun for families to load up into a crowded plane, jam into a big-name hotel, and spend a full day among huge crowds at theme parks. People may seek out alternative forms of vacations. Perhaps an RV purchase or rental? Hit the road with a family of 4 in a private vehicle and camp-out at an RV park where there is plenty of space and separation. It may be more enjoyable to rent a car and find a secluded mountain cabin rather than fly to a crowded city. Rental car companies, boutique hotel operators, and RV-centric companies stand to benefit from this trend if it comes to pass. More importantly, since these groups will be selling experience of safety and wellness, price becomes less of an issue, and these groups are less likely to offer blockbuster price deals to reignite interest. The result? More volume at higher margins. This also sounds like a winning investment strategy.
A Few Boring & Not So Obvious Trends That May Help You Find Some Stock Market Winners Post COVID-19 was originally published in Terence Channon on Medium, where people are continuing the conversation by highlighting and responding to this story.