2 Ways to Play the Market Recovery
COVID-19 reset the economy in a big way.
Not only did it knock the stuffing out of weak companies, but it changed the way we work and live.
For example, businesses are rethinking office spaces with millions of people working from home.
Business travel and conferences that were once in person have now moved to Zoom.
And airlines are struggling to breakeven as unnecessary travel all but grinds to a halt.
While many businesses have struggled in the wake of the pandemic, strong companies that were doing well before the outbreak continue to thrive.
I want to share two of those companies with you today. Not only have they knocked the lights out during this pandemic, but both should do even better once the economy is back up and running.
Check out the complete details in the video below:
COVID-19 Chapter 11 Retail Filings
It looks like the COVID-19 curve started to flatten out in a big way. Thank God for that. Fewer people are dying, and we’re fortunate for that. We’re working on a vaccine, the government’s telling us it’s doing amazing things and basically we’re starting to move around again.
COVID-19 not only really blindsided us, it also reset the economy in the United States and around the world. What happened during the past six to eight weeks — or now close to eight to 10 weeks, gosh, as time goes on — is that the pandemic really knocked the stuffing out of weak companies. Weak companies that were hurting just got destroyed, and strong companies that were doing well before are continuing to thrive.
There are some notable examples of that. For example, Chapter 11 filings: we’re already seeing clothing retailer J.Crew, luxury department store Neiman Marcus and even department store chain J.C. Penney, which was sick even coming into this.
Some of the retailers got hammered. How could you make money when there’s no foot traffic? You close your doors, you can’t ring the register. It’s that simple. If a business was weak going into the pandemic, it’s going to come out much weaker, if it’s lucky.
COVID-19 reset the landscape in the business world, but it also reset the way we work and live. For example, real estate. Many companies are rethinking office space. First of all, who wants to go and travel one to two hours commuting? Second, sitting in an office, which is basically very crowded. The fear of getting sick again or a virus is really holding back people from ever going to offices again.
I’m not saying people are never going to go to an office again, but with Zoom and different types of videoconference apps, we saw that we can continue to operate without an office. Businesses are seeing it, so we could save more on the bottom line.
For example, just the last week or so, Twitter basically told its employees that they could work at home indefinitely. Now, that might not be for everyone, but certainly for some people it really works out. Think about how many hours a week of just traveling you’re saving.
Zoom impacted business travel and conferences. We couldn’t go to conferences, we couldn’t travel on business, but people still met. After this pandemic is over and we’re able to move around again, are people going to be willing to spend so many thousands of dollars traveling from one end of the country just for a 10-minute meeting when they could do it on Zoom?
Airlines are not selling their middle seats in order to have social distancing. They can’t make money at 50% full. In fact, they break even at 75% full. I don’t know what the story with that is, but certain businesses and business models are really going to have challenging, challenging times.
2 Retailers Come Out on Top
A few companies not only survived the shutdown, but they actually thrived. Today, I’m going to share with you two companies I’ve been following that, if they would trade just a bit lower, I would bounce all over them and buy them as quickly as possible. They would really be great buys.
The most important factor when investing is the price you pay. You could buy a great company at a very high price and produce terrible results. You could buy a terrible business at a great price and get great results. I want to share with you today two companies that I really have on my radar that have just knocked the lights out during this pandemic.
The two companies I’m talking about have been doing very well during the shutdown. Both of them happen to be retailers, in the same retail industry that J.Crew was trying to survive — which got killed — and also Neiman Marcus and J.C. Penney.
But these two retailers are thriving. What’s interesting is both were poo-pooed for being brick-and-mortar retailers and not having a strong online presence. Even though they had an online presence, the talk was Amazon was still eating their lunch. Let me share with you these two companies. These are companies you should definitely keep an eye on.
The first company is mega retailer Walmart Inc. (NYSE: WMT). Now, think about that for one second. Walmart has 4,700 — or 4,670, or somewhere around there — stores in the United States. I think there’s a Walmart within 25 miles of every major city somewhere. Just absolutely staggering, its reach.
During this pandemic, its sales have zoomed. Why? Because consumers went there to stock up when there were shutdowns in other stores. Both have an interesting way of doing business because there’s not only one channel. Walmart has an online and a retail presence, so when competitors that only really have a store presence, or brick-and-mortar presence, had to close, Walmart was open — and you could get to it via its strong online and strong retail presence.
Here’s the thing: It was an essential business because it sells food and groceries. But you walk into a Walmart, it also sells desks, chairs, tables, clothing and even cables. It has everything. When other stores were closed, it had it all open.
It has a multichannel business. You could order online and then pick up at the store. In fact, e-commerce sales jumped 74%. Millions of customers ordered online, then they went to pick up at the store in the company’s parking lot.
Walmart had to have a lot of things right, and it was really in the sweet spot for this. Large parking lots, huge stores, an amazing distribution channel and an online presence. Put that all together, and that’s why it thrived during this market pandemic.
Amazon is not able to really do that. Amazon also prioritized shipping medical supplies. I order from Amazon on my Amazon Prime, and in New York, we sometimes get things in one day — in several hours after we order. But usually, one- to two-day delivery is all I ever order.
Now when I was ordering, things were taking priority and it was taking weeks. If I needed something quick, I would go to a Walmart store — if they happened to be in New York, but they weren’t, so I had to wait.
It’s much easier to order online at Walmart and pick up at the stores, and that’s why customers were flocking to them. There’s a huge structural advantage to a company like Walmart that when this pandemic eases up, it’s just going to thrive even more. It’s gained millions of new customers who never shopped at its stores before, now seeing the brick-and-mortar presence with the online, and it just works seamlessly.
The next company is Costco Wholesale Corp. (Nasdaq: COST). Full disclosure: I am a member of Costco and have been for years. I love Costco. It’s a membership-only warehouse club. It works on razor-thin margins and low frills, and it’s a great shopping experience. The thrill of going there and finding something new all the time is always exciting.
Did I mention great prices? It has brand-name stuff, excellent stuff, at really fantastic prices. What I really love about it is, if you want to return something, no questions asked. It doesn’t bother you and make you go through 4,000 hoops.
The key about Costco’s business model is that — unlike, let’s say, Target, which has over 80,000 items — Costco only has a very limited, in most cases, about 3,700 items. It goes very deep and not that wide. There aren’t 58 different brands of ketchup.
Like Walmart, it sells food and groceries, so when the consumer went there, when it was open, to buy their mega amounts of toilet paper, paper towels and all the other stuff that people were stocking up on, they could also buy clothing, batteries and televisions. While its competitors were shut down, Costco was still open, and that’s what was driving business.
Also, it has gas for your car. Sometimes when I’m at a Costco I go and fill up my gas, and it’s usually much cheaper than shopping for gas out on the main thoroughfares.
It has an online presence as well. It has excellent margins on its Kirkland private-label brand, which I happen to like — I think it’s a great brand. And it has a great business model. That’s why Costco is going to not only survive this pandemic, but it’s also thriving.
Just to sum it up, both Walmart and Costco are retailers that should be on your shopping list — pun intended. I don’t like the price to pay for them now, but I am watching them carefully.
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