Quality shares, that grow profits and compound away returns on capital, have been the investment play of the last decade but coronavirus has blown that out of the water. It's not all doom and gloom though. We are in for a rough few months but there are good companies flagged that will get pulled into much cheaper territory. It would be a bold person who said it's time to buy now, but it sure is time to plan.
- With the global economy in shutdown, many observed quality trends will be no indicator of the fortunes of companies in the next twelve months. Furthermore, our screen measures that rely on earnings growth will change once inevitable forecast downgrades are announced and feed through to the data.
- Investors are rightly concerned but this is also the time to build a watchlist of companies for when there is a recovery, although with further turmoil expected, the time to buy won’t be this week.
- Our top-ranking larger company is Moneysupermarket.com (MONY), this is a business with very little debt, and a reasonably large proportion of its costs are variable and relate to sales, which will also help in a recession. In any case, people will still be obliged to buy car insurance and will likely be searching for the best deals on other products like home insurance, credit cards and loans, too.
- Some businesses that rank well, should be avoided regardless because of the coronavirus crisis. For example, leisure business Hollywood Bowl (BOWL) is going to be hit hard by restrictions on gatherings and movement if/when they come into force.