A trader works ahead of the closing bell on the floor of the New York Stock Exchange (NYSE) (Photo … [+]
The evidence from China and Italy suggests that reducing people’s exposure to each other is the best way to curb infection growth. However, that will dramatically reduce economic activity, which will lead in turn to a recession. Market participants need to discount this likelihood both by reducing earnings growth estimates and cutting price/earnings multiples across the board.
From our narrow perspective as investors, it’s clear that the pandemic will improve the fortunes of many companies at the forefront of the great digital transformation. I.e., if you can’t go to your office, the cloud and teleconferencing services become more valuable. Below is a list of companies to put on your buy or watch list.
Some on the list are obvious like teleconferencing company Zoom and Regeneron Pharmaceuticals, which is a leading the way in developing a remedy for coronavirus. Thermo Fisher is making diagnostic test kits for coronavirus and Intercontinental Exchange is a global information technology firm that owns among other things the New York Stock Exchange, which has been operating in overdrive given the recent volume and volatility.
Less obvious are firms like Accenture and Booz Allen. These are consulting firms that large organizations turn to for advice at critical times like this.
Accenture plays mostly in the corporate/commercial space while Booz Allen plays mostly in the government space. If a government entity wants to create a quick website showing new restrictions on travel — they’ll call their Booz rep who will help with the project and they’ll add the assignment to an existing or new contract.
These could be relatively good times for consultants as they are getting unexpected new business from the crisis … as opposed to most companies, which are losing engagement or profit centers. Many of these stocks have high price-earnings multiples but many also have high growth rates.