The steady lifting of lockdown measures has brought a breath of normality back to life in Britain. Busy roads, bustling parks and blooming garden centres are almost reflective of a normal May weekend.
But although we seem to have emerged from the post-apocalyptic mood of lockdown, there is certainly a sense that life is never going back to the old normal. Trends that were starting to shape the way we live pre-coronavirus have been exposed and in some cases accelerated by the pandemic.
To capitalise on these trends, investors should look beyond these shores. We have picked 15 international stocks with the ability to bounce back quickly and the capacity to thrive in a post-coronavirus world.
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Vestas Wind Systems
Technology at the heart of all we do
Satya Nadella, chief executive of software giant Microsoft (US:MSFT), says his company has seen “two years’ worth of digital transformation in two months”. That’s hardly surprising given the sudden increase in remote working and growing demand for cloud infrastructure courtesy of coronavirus.
But the demand for work-from-home software will not keep rising indefinitely – we’re not all going to stay away from our offices for good – nor will online socialising and entertainment permanently replace their physical equivalents. That said, the digital transformation that sparked 15 per cent growth in revenues at Microsoft in the first quarter of 2020 is unlikely to entirely reverse. Coronavirus has heightened individual and corporate awareness of the need for strong connectivity, including software and telecoms infrastructure.
It has also brought a new angle to the debate around use of data – government sponsored tracking systems have popped up in many countries in the past few months as authorities scramble to get a full picture of the scale of the coronavirus pandemic. The protection of people’s health gives personal data collection a far more acceptable purpose than targeted marketing campaigns. Regulators who have interrogated big tech executives with increasing determination for the past five years might be willing to take a softer stance in the future.
There are, understandably, doubters. “I’m glad that they’re willing to help,” Republican senator Josh Hawley said of Alphabet’s (US:GOOGL) efforts to develop screening mechanisms for Covid-19. “I hope that they’re actually helping and not using this as an opportunity to drum up business.”
But the future of technology is not just about products and services that are already in place, or what Alex Newman described in his recent feature as “an unending era of ever-sharper iPhone cameras”. Innovative solutions to some of the world’s most pressing problems – resource competition, climate change, inequality – are increasingly being built by some of the world’s biggest technology companies.
There is no better example of this than Alphabet whose ‘other bets’ division is developing many new technologies in the fields of artificial intelligence, driverless vehicles and green energy. Alphabet’s growing portfolio of early-stage companies has recently drawn comparisons with Warren Buffett’s investment giant Berkshire Hathaway, which booked its place in investment history books when it began reinvesting the profits of its insurance business back into other companies. The ‘Sage of Omaha’ himself expressed his regret back in 2017 that he hadn’t cottoned on to Alphabet’s growth story sooner. But the era of ‘big tech’ is far from over – arguably its dominance will only increase as the Covid-19 crisis accelerates key trends and paves the way for longer lasting behavioural changes.
A new era in consumerism
It would be unfair to say that digital shopping is a trend that has been sparked by coronavirus. Amazon (US:AMZN) upended the book retail industry in the early 2000s and has been applying the same ruthless innovation to every sector it has targeted to enter since.
But perhaps the digital habits have filtered through to more sectors and even populations owing to the pandemic and subsequent lockdown. In April, headline US retail sales – a measure of sales in stores and restaurants – plunged 16.4 per cent, according to data from the commerce department. That same month, non-store sales rose by more than a fifth. With these trends unlikely to die down after the pandemic has passed, an increasingly digital consumer world is looking likely.
That would help explain why PayPal’s (US:PYPL) share price recently hit an all-time high, even though most of its key markets are entering a recession. Investors are clearly more focused on the fact that a greater proportion of global expenditure will be happening digitally in the coming years than the concern that job losses and recession could stunt overall spending.
Regardless of the immediate economic challenges, a digital strategy and e-commerce arm are crucial to long-term success for retailers and personal goods companies. Keeping one eye on the future is also important for the next link in the chain – the property companies that provide for the retail industry. On one hand, commercial landlords who rent to retailers are sharing in the pain felt by shuttered shops, but on the other, demand for industrial premises that can serve online demand is soaring.
Stag Industrials (US:STAG) provides clear evidence of that trend. The group’s rent collection has proved resilient since the Covid-19 pandemic took hold, as it collected 99 per cent of March base rental billings and 90 per cent of April base rental billing. Perhaps that is not surprising – the company’s number one tenant is Amazon, which is currently servicing more deliveries than it has ever done before.
Health in sharper focus
The fitness technology industry was worth $26bn in 2018. And, according to the Global Wellness Institute, it is set to enjoy an average annual growth rate of 8.6 per cent over the next few years – reaching $39.8bn in 2023.
Market projections should be treated with additional caution now that we’re in the middle of a pandemic. But there’s also an argument that lockdown measures may have catalysed an existing trend – driving even more of us towards digital exercise products while we cannot go to the gym. Any such acceleration would be good news for Garmin (US:GRMN), for which fitness constitutes more than 25 per cent of revenues.
The same trends have driven demand at fitness equipment retailers and boosted the ‘athleisure’ market, which is now expected to hit a $257bn valuation by 2026, from $155bn last year. Meanwhile, gym companies are desperate to open – aside from the revenue they are missing out on when in lockdown, there is a real danger than alternative solutions might dissuade people from continuing their expensive memberships.
It’s not just fitness goals we have in mind when we talk about post-coronavirus health priorities. The pandemic has exposed frailties in global health systems that need to be addressed – better hygiene and personal care among them.
For now, the pharmaceutical industry is dominated by discussion about testing and vaccines for Covid-19, but even when the current pandemic dies down, focus on infectious diseases is likely to remain. Indeed, a strategy for dealing with illnesses caused by both viruses and bacteria has been among the top priorities for the World Health Organisation for many years. Regulation can help stimulate investment in areas of unmet need.
The need for medical efficiency – which includes keeping patients out of hospital – has also been accelerated by the pandemic. For too long the pharmaceutical industry has thrived on a model of making big margins from ‘maintenance medicines’ – those that treat non-life-threatening diseases – and has trailed the innovation coming out of universities and research centres. Greater focus on commercialising the world’s best new science, including genetic medicine and digital health, is crucial if we are going to avoid future pandemics.
How we eat
Life under lockdown has transformed the way we eat. Indeed, the coronavirus pandemic has been terrible news for restaurants and bars. But it has also sparked a surge in supermarket shopping, driving people to cook (or microwave) at home. And Swiss-listed Nestlé (CH:NESN) has ridden the crest of that wave. The food and drinks behemoth beat analysts’ expectations for the first three months of 2020, unveiling a 4.3 per cent uptick in organic revenues to CHF20.8bn (£17.7bn), driven by demand for frozen food and baking products.
Stockpiling long-life goods during lockdown is a useful string to the bow of those who argue that the recent rise in healthy eating is a short-term fad, driven by wealthy westerners in times of prosperity. It’s true that price might become more problematic if we are entering a long period of economic turbulence. But the cost and availability of healthy food has come down dramatically in the past few years as food producers have increased their focus on the fashionable way of eating. That is especially true of vegetarian and vegan products. Demand for meat-free food increased by almost 1,000 per cent in 2017 and has continued to rise sharply as food producers help make vegetarian options more readily available. Supermarkets now stock many meat alternatives at reasonable prices and vegetarians in restaurants have more options than mustard risotto and goats cheese tart. Even McDonald’s (US:MCD) now sells vegan burgers.
It isn’t just the demand side of the food industry where sentiment is starting to shift. Meat supply is coming under scrutiny as environmentalists call into question the efficiency of production – it reportedly takes 10 kilograms (kg) of vegetables to grow every one kg of cow. And the push towards greener lifestyles is certainly not expected to disappear post-coronavirus. Indeed, environmental initiatives are being touted as a key area of investment to help bring us out of the economic hole created by the pandemic and subsequent lockdown – a topic we discussed at length in the introduction to our new series of features ‘A New Future’.
Consumer demand for green initiatives – including veganism, slower fashion and ‘staycations’ – is just one part of the clean environment story. Policy is also important. National decarbonisation targets encourage governments to offer subsidies for clean energy development and usage. The third (and perhaps most crucial) link in the chain is a greater capacity to supply green energy. In the past few years as the cost of building windfarms has come down, efficiency has increased and demand has gone up. Britain now plans to generate a third of its power from wind by 2030.
It is worth being wary of the fact that a shift in demand for electricity caused by coronavirus and the expected economic stagnation might dent the momentum behind green energy projects. But then many governments want to harness their post-coronavirus recovery plans into boosting low-carbon initiatives. Under slogans such as ‘build back better’ and the ‘Green New Deal’, they are attempting to build an economic model that doesn’t rely on so much fossil fuel usage. Coronavirus and its subsequent lockdown has revealed that we can live in a world where we are using less energy.
What’s more, oil’s doldrums are now showing investors a fuller picture of the opportunities for green energy investment. Crashing prices mean the economics that drove massive oil and gas projects are now gone, and renewables projects can offer equal returns with a green selling point. Consultancy Wood Mackenzie says on a pure numbers basis renewables projects now make as much sense as a new oil field. At $35 a barrel an oil project would give an average internal rate of return of 6 per cent, the same as a low-risk wind or solar project.
Looking ahead at wind turbine demand, Canaccord Genuity analysts see installed capacity rising fourfold in the next 20 years, to 115Gwp. This would cover around 60 per cent of the UK’s electricity needs and largely be in the form of offshore projects in the North Sea.