All safe on the Evarvest side, firmly locked down at home in most of the countries where our team are based!
Thank you for the question / discussion - this is definitely one of the most interesting dynamics out there right now for me along with airline stocks & oil+gas companies. I’ll try to cover my initial high level thoughts here but this is a topic which I probably won’t be able to cover comprehensively all at once - so please feel free to shout if you have any follow up questions and we can explore this together!
Re. Amazon - they will be using its logistics and delivery platform to help governments many of the countries where they have a presence - in the UK this will mean helping with the distribution of COVID-19 testing kits and potentially also PPE. Arguably for amazon however, the impact on their revenue from purely government contracts might be somewhat meaningful but I would argue the impact on their revenue from people staying at home, using services such as Amazon pantry / Amazon fresh and also ordering other miscellaneous items (home gyms, office equipment, etc.) could add up to be even more meaningful.
You would need to dig into a company’s revenues, the expected benefit from government spending + other boosts to revenue from their business model and offset that with any potential declines in revenue from other parts of the business which may struggle under the new normal - with the Amazon example again this could mean lower overall spending on their services as consumers might spend less on discretionary items given they may be conscious about their own disposable income over the coming months.
There are also a host of other companies who will see elevated activity in the short term due to government contracts being awarded for their services. I’ve listed a few of the publicly traded names here in addition to Amazon for you to dig further into if you would like to do so: Johnson & Johnson, Pfizer, CVS, Walgreens, Intuitive Surgical, Ping An, Siemens Healthineers, Fresenius, Teladoc Health & HCA Healthcare. Each of these companies may benefit in the short term but the impact on each company will be very specific - based on how big the government spending uplift is as a proportion of the company itself and whether that boost offsets any losses they may be making elsewhere.
From an investment perspective, I would argue that this theme can be slightly misleading - our instinctive reaction is to think along the lines of “there must be some companies out there which will benefit from this” - which I think reflects the sentiment behind your question. The reality however is that most other investors also have the same instinctive question come to mind, and the answer to that seemingly simple question is much more complicated than it might seem at first.
What makes it difficult to capitalise on something like this is the fact that in frictionless markets (such as western / developed equity markets with many sophisticated investors participating), this usually means the expectation for companies to benefit from government spending is reflected in the share price fairly quickly (you usually have a small window of a few minutes to a few hours once an announcement is made by the government to figure out the likely impact on a company’s valuation and make a trading decision before the rest of the market catches up and the price reflects the expected increase in company value).
I would therefore recommend caution before diving into investment decisions based on these types of impulses, and instead advocate much more strongly for trying to find high quality companies and brands - which may well include the likes of Amazon, J&J, Healthineers and others - companies which shouldn’t struggle from a cash / liquidity / debt perspective, and investing in them for the long run. If you take a 5-10 year view on this situation, it’s likely that we will have fully recovered from the pandemic in the next couple of years and those companies which are best placed to lead the recovery are the ones which will make you outsized returns over the long tun.
For the shorter term trading decisions it’s very easy to get them wrong and can be very difficult to time the trading decision correctly. Of course you can follow simple trading strategies and rules to limit your overall exposure by make small trades across a large number of companies in the hope that you make more winning trades than losing ones, but I would definitely recommend caution when going down the short term trading path, and if you do choose to do so, I would recommend you have a clear idea in mind of what you want to achieve, and what all the different factors at play might be - from government contracts to other headwinds / tailwinds for revenue, to the impact on labour / wages / costs for the company, to market psychology and overall sentiment.
If helpful, here’s a list of companies off the top of my head which could be potential “winners” coming out of this pandemic (which kind of explains why their share prices have mostly held up better / seen less declines than other parts of the stock market):
Working from home: Microsoft, Apple, Broadcom, Intel, Logitech, NVidia, Zoom, Citrix, Cisco, Sophos
Quarantined at home: Facebook, Samsung, Activision Blizzard, Sony, Netflix, iQiYi, Amazon, Ali Baba, Alphabet, Tencent, Delivery Hero, JustEat Takeaway.com
Paying from home: Visa, Mastercard, Worldline, Square, Paypal, Adyen
I appreciate that this might not have been the most straightforward response - but it’s a messy situation! Please let me know if you have any questions or if anything is unclear and I’ll be happy to try and help further!