Last week, I asked what changes once the coronavirus scare passes, and what doesn’t. Today, we’re going to expand on that theme, looking at company earnings.
We’re obviously not going to live under lockdown forever. Though I can tell you it’s starting to feel that way, and after weeks of not shaving and generally letting myself go, I’m starting to resemble Tom Hanks from Castaway. My children don’t see the humor in talking to their soccer ball and insisting on calling it Wilson.
At any rate, the virus lockdowns have been windfalls for several companies, including major retailers with a strong web presence like Amazon.com (NASDAQ:AMZN) and Walmart (NYSE:WMT). As I mentioned last week, both companies are picking up market share at the expense of less web-savvy retailers and those deemed to be less “essential.” Those earnings may dissipate over time to some extent, but probably not anytime soon.
But let’s dig deeper.
Company Earnings: Coronavirus Winners and Losers
We’ve seen photos for over a month now of empty grocery store aisles where toilet paper and cleaning supplies would normally be. We haven’t seen earnings releases yet for Procter & Gamble (NYSE:PG) or Kimberly-Clark Corporation (NYSE:KMB), makers of the Charmin and Scott brands, respectively, and the largest manufacturers of branded toilet paper.
We can assume they got a bump to earnings last quarter due to hoarding. But no one in their right mind could argue that bump will be durable or permanent because we’re not actually using more toilet paper than usual. We’re just stockpiling it for reasons that still aren’t entirely clear to me, which means that excess purchasing today are simply reducing our future buys tomorrow.
But compare that to, say, Clorox (NYSE:CLX), which makes bleach, disinfecting wipes and other assorted cleaning products. There was a rash of panic buying of these too. But the difference is that we really are cleaning more than before, and that’s not super likely to change in the coming months. Every school, office, or retail property on earth will be scrubbing every square inch of space for months to come… just in case. No one wants their place of business tied to another virus outbreak.
So, as you look at stocks for post-coronavirus trends and earnings trends, ask yourself the following question: Was any increase in sales due to one-off situations that won’t be repeated? Or are the conditions likely to stick around for a bit?
When I hear colleagues or acquaintances talk about losing data due to hard drive failure, I just sort of shake my head. I made myself disaster-proof over a decade ago, putting all of my data in the cloud before “the cloud” was a popular expression.
Were my children to jump on my laptop and crush it (purely hypothetical situation, of course…), I could buy or otherwise acquire another computer and be up and running again in 10 minutes. In a pinch, I could even access my files on my phone. It’s baffling to me that there’s still anyone out there who’s not in the cloud.
Every company, school, governmental organization and even church or synagogue just got a major reminder of why they need their operations to be disaster-proof and in the cloud. This means that the major tech themes of the past several years such as software as a service (“SAAS”), moving critical data and systems to cloud servers, etc. is only going to accelerate. No one wants to get caught with their pants down again.
Not every communications app is a winner, and there is always the risk that someone new comes along tomorrow with a better mousetrap. But sector wide, the coronavirus bump in communications and tech spending – and company earnings – isn’t likely to be a flash in the pan.
Disclaimer: This article is for informational purposes only and should not be considered specific investment advice or as a solicitation to buy or sell any securities. Sizemore Capital personnel and clients will often have an interest in the securities mentioned. There is risk in any investment in traded securities, and all Sizemore Capital investment strategies have the possibility of loss. Past performance is no guarantee of future results.
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.