Sectors that are likely to NOT give you an earnings fright
Let's remove the element of timing. We value companies using DCF and relative PE, EV / EBITDA, price to book etc. But DCF, PE, EV / EBITDA is useless if the earnings of a company plunges to negative for 1 to 2 years due to the pandemic. Even price to book, which I feel is the most conservative and most useful to value companies without earnings, may turn negative if highly geared and one big loss wipes out all equity.
A successful virus does not intend to wipe out the human host instantly, but mutates to stay in the host and infect more hosts. So my guess is the virus will become less deadly as the years passes by, until a new strain comes along to wipe out more people. However, habits and the way we live will change.
Habits that will change after Covid 19:
1. WFH will be here to stay. Those sectors that pay workers by work will move to WFH. Employees, contractors will subsidise the employers' real estate and utility costs. I believe there will be several waves of infection after the lock downs are relaxed.
https://www.msn.com/en-sg/money/other/singapore-encourages-remote-work-even-as-some-curbs-near-end/ar-BB13wQdN?li=BBr8Cnr
2. Demand for commercial real estate will decline. Demand for retail is of course a foregone conclusion.
Employers will hesitate to rent more space as they worry about the next pandemic and how it will affect their WFH and BCP arrangements. So office spaces will decline or not grow as much.
Retail space is a foregone conclusion. This sector is already affected by online shopping and the pandemic only serves to push more retailers to online shopping.
Retail real estate: Short term outlook. - 6 some reits are undervalued. Longer term outlook -4.
Office real estate: - 2. Longer term outlook -1.
3. Demand for logistics space to increase. More warehousing, more online retailing etc. Amazon, Lazada etc to benefit.
Logistics real estate: + 3. Longer term outlook. + 2
4. Data centres to increase or at least no change. To effectively WFH, connectivity needs to improve. DC will see their biz increase slightly faster. It is no big surprise so I'm still not a big fan of this. But earnings won't fall.
Data centre real estate: + 2. Longer term outlook. +2
5. F&B habits will change. Retail space's sole saviour used to be F&B. But not any more. F&B will focus on takeaways, less real estate, more tech enabling. focus on central kitchens etc. I still like Domino's Pizza, McDonalds, Yum and Yum China. Supermarkets will see their reveune rise as most people save money by cooking at home. Seng Shiong... NTUC, Walmart.
F&B: fine dining: - 3. Longer term outlook. +1.
Mass F&B dining: - 1. Longer term outlook. + 1.
Supermarkets: + 3. Longer term outlook. +2.
6. Travel related, airlines, hotels, hospitality will take 2 to 3 years to go back to pre pandemic demand. People still wish to travel for leisure. But biz travels may take a lot longer to recover as most rely more on Zoom, Microsoft TEAM, Skype for biz. Having said that many REITS have been oversold and may return. Look at Ascott Residential Trust, Far East Hospitality, ARA REIT etc. Well below NAV and even if I wipe out 20% of the NAV it is still at a discount.
Hotels, airlines, cruises: - 7. Longer term outlook. +1.
7. Tech enablers for food deliveries, gaming etc should see revenue rise. THis is my favourite sector. Food panda, Deliveroo, Meituan Dianping 3690 HK, Alibaba, Tencent 700 HK, Amazon, Alphabet, could see their earnings unaffected.
Tech enablers, deliveries, gaming: + 8. Longer term outlook + 3.
8. Social media advertising revenue to drop slightly but recover. Facebook, Alphabet etc should see their earnings fall slightly but not to the extent that it turns into losses, because certain sectors like online education is booming and will pay to advertise on Facebook, Instagram, Alphabet, Tencent etc.
social media, search engine, tech with advertisement revenue models: - 3. Longer term outlook + 4.
9. Energy companies are beaten down, earnings are the worst hit. But they should recover, but not to the extent of pre pandemic. I dislike traditional energy companies. The world will suffer even more environmental disasters in the next 10 years. I feel that it will cause millions of deaths as sea levels rise and hurricanes become more violent. While I think companies like Schlumberger, Shell, Exxon and Total are oversold, they will never regain their last high. Maybe just 50 to 60% of it. It's just a trade.
Energy: -7. But undervalued sector. Longer term outlook -3
10. Medical, healthcare. This is my second most bullish bet. Biotech, healthcare companies will see their earnings rise as the world increases expenditure to this sector. I personally am looking for biotech and healthcare funds like Franklin and Janus. Will talk more about ths in other posts. IHF is a healthcare ETF for the US. Earnings may see increases.
Healthcare: + 6. Longer term outlook + 4.
11. There should be inceases in revenue for supplement companies, especially those that produce GMP products. https://www.hsa.gov.sg/chinese-proprietary-medicines/dealers-licence/gmp-gdp-standards
Below is a list of publicly listed supplement related companies. Earnings to see increases
Supplements sector + 4. Longer term outlook + 3.
https://swingtradebot.com/stocks-tagged-as/383-dietary-supplements
12. Payment systems. Mastercard, Visa, Paypal should see their earnings fall slightly as people cut back on spending. But long term, more people will pay using credit cards and not cash. Contactless payment will be important to stem infections from physical cash.
Payment systems: -3. Longer term outlook + 3.
13. Residential property demand. this should increase due to WFH, as people realise they need a bigger, more spacious home in order to work comfortably. Perhaps even a room for office, away from the kids. Heck, people may live further away from the CBD just to have a bigger home, commute longer.
Residential properties: + 2. Longer term outlook + 2.
14. Online education. THis is a huge sector as many people are marketing their skills online, teaching everything from cooking, travel, health, relationships to finance. Youtube traffic shot through the roof. Paid courses online shot through the roof. This is perhaps the best opportunity for entrepreneurs to make their millions if you have something to add value.
Online education: + 8. Longer term outlook + 4.
A successful virus does not intend to wipe out the human host instantly, but mutates to stay in the host and infect more hosts. So my guess is the virus will become less deadly as the years passes by, until a new strain comes along to wipe out more people. However, habits and the way we live will change.
Habits that will change after Covid 19:
1. WFH will be here to stay. Those sectors that pay workers by work will move to WFH. Employees, contractors will subsidise the employers' real estate and utility costs. I believe there will be several waves of infection after the lock downs are relaxed.
https://www.msn.com/en-sg/money/other/singapore-encourages-remote-work-even-as-some-curbs-near-end/ar-BB13wQdN?li=BBr8Cnr
2. Demand for commercial real estate will decline. Demand for retail is of course a foregone conclusion.
Employers will hesitate to rent more space as they worry about the next pandemic and how it will affect their WFH and BCP arrangements. So office spaces will decline or not grow as much.
Retail space is a foregone conclusion. This sector is already affected by online shopping and the pandemic only serves to push more retailers to online shopping.
Retail real estate: Short term outlook. - 6 some reits are undervalued. Longer term outlook -4.
Office real estate: - 2. Longer term outlook -1.
3. Demand for logistics space to increase. More warehousing, more online retailing etc. Amazon, Lazada etc to benefit.
Logistics real estate: + 3. Longer term outlook. + 2
4. Data centres to increase or at least no change. To effectively WFH, connectivity needs to improve. DC will see their biz increase slightly faster. It is no big surprise so I'm still not a big fan of this. But earnings won't fall.
Data centre real estate: + 2. Longer term outlook. +2
5. F&B habits will change. Retail space's sole saviour used to be F&B. But not any more. F&B will focus on takeaways, less real estate, more tech enabling. focus on central kitchens etc. I still like Domino's Pizza, McDonalds, Yum and Yum China. Supermarkets will see their reveune rise as most people save money by cooking at home. Seng Shiong... NTUC, Walmart.
F&B: fine dining: - 3. Longer term outlook. +1.
Mass F&B dining: - 1. Longer term outlook. + 1.
Supermarkets: + 3. Longer term outlook. +2.
6. Travel related, airlines, hotels, hospitality will take 2 to 3 years to go back to pre pandemic demand. People still wish to travel for leisure. But biz travels may take a lot longer to recover as most rely more on Zoom, Microsoft TEAM, Skype for biz. Having said that many REITS have been oversold and may return. Look at Ascott Residential Trust, Far East Hospitality, ARA REIT etc. Well below NAV and even if I wipe out 20% of the NAV it is still at a discount.
Hotels, airlines, cruises: - 7. Longer term outlook. +1.
7. Tech enablers for food deliveries, gaming etc should see revenue rise. THis is my favourite sector. Food panda, Deliveroo, Meituan Dianping 3690 HK, Alibaba, Tencent 700 HK, Amazon, Alphabet, could see their earnings unaffected.
Tech enablers, deliveries, gaming: + 8. Longer term outlook + 3.
8. Social media advertising revenue to drop slightly but recover. Facebook, Alphabet etc should see their earnings fall slightly but not to the extent that it turns into losses, because certain sectors like online education is booming and will pay to advertise on Facebook, Instagram, Alphabet, Tencent etc.
social media, search engine, tech with advertisement revenue models: - 3. Longer term outlook + 4.
9. Energy companies are beaten down, earnings are the worst hit. But they should recover, but not to the extent of pre pandemic. I dislike traditional energy companies. The world will suffer even more environmental disasters in the next 10 years. I feel that it will cause millions of deaths as sea levels rise and hurricanes become more violent. While I think companies like Schlumberger, Shell, Exxon and Total are oversold, they will never regain their last high. Maybe just 50 to 60% of it. It's just a trade.
Energy: -7. But undervalued sector. Longer term outlook -3
10. Medical, healthcare. This is my second most bullish bet. Biotech, healthcare companies will see their earnings rise as the world increases expenditure to this sector. I personally am looking for biotech and healthcare funds like Franklin and Janus. Will talk more about ths in other posts. IHF is a healthcare ETF for the US. Earnings may see increases.
Healthcare: + 6. Longer term outlook + 4.
11. There should be inceases in revenue for supplement companies, especially those that produce GMP products. https://www.hsa.gov.sg/chinese-proprietary-medicines/dealers-licence/gmp-gdp-standards
Below is a list of publicly listed supplement related companies. Earnings to see increases
Supplements sector + 4. Longer term outlook + 3.
https://swingtradebot.com/stocks-tagged-as/383-dietary-supplements
12. Payment systems. Mastercard, Visa, Paypal should see their earnings fall slightly as people cut back on spending. But long term, more people will pay using credit cards and not cash. Contactless payment will be important to stem infections from physical cash.
Payment systems: -3. Longer term outlook + 3.
13. Residential property demand. this should increase due to WFH, as people realise they need a bigger, more spacious home in order to work comfortably. Perhaps even a room for office, away from the kids. Heck, people may live further away from the CBD just to have a bigger home, commute longer.
Residential properties: + 2. Longer term outlook + 2.
14. Online education. THis is a huge sector as many people are marketing their skills online, teaching everything from cooking, travel, health, relationships to finance. Youtube traffic shot through the roof. Paid courses online shot through the roof. This is perhaps the best opportunity for entrepreneurs to make their millions if you have something to add value.
Online education: + 8. Longer term outlook + 4.
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