The coronavirus pandemic is sending many stocks into the eaves. But that doesn’t mean every action is a bad buy right now. Investors need to adapt to a different consumer lifestyle, mainly because many governments have forced non-essential businesses to close.
The three underlying stocks will continue to see demand for their products and services even if the pandemic continues, and now may be a good time to buy them.
1. Growth of the canopy
Canopy growth (NYSE: CGC) consumers depend on cannabis in their daily lives, both for medical use and for relieving stress during a very tumultuous period. There may be a drop in demand, especially in the recreational pot, which is less crucial for users than medical marijuana, but the company will still be able to sell its products. The Canadian government has classified cannabis as essential during the pandemic, as well as many provinces, including Quebec, British Columbia and Alberta, four of the largest and most critical for growth in the sector. This means that pot stores can remain open, allowing consumers to continue buying cannabis during the pandemic.
Canopy Growth has closed some of its corporate stores to help slow the spread of coronavirus. The company moved to a selection and collection model in some locations while in Manitoba and Saskatchewan it focused on e-commerce sales, allowing it to continue generating revenue during the pandemic. But Canadians can still buy the pot in other stores and in March cannabis was on their shopping lists while people were being supplied for extended stays at home. Stores have seen an increase in demand, with a store that has noticed that sales in a weekend have increased at least 80% compared to the previous week. But even if consumers don’t want to go to stores, delivery is also an option. Delivery services saw an increase in consumer demand in March and this trend could continue as more people remain at home.
Canopy posted an impressive third quarter result in February, with a 49% increase in sales compared to the previous year’s quarter. But with the pandemic, the stock is unlikely to be able to maintain anything like that level of sales growth for the rest of this year, as difficult economic conditions are likely to weigh on all sectors.
Netflix (NASDAQ: NFLX) is another company that has been seeing an increase in demand in recent times. In March, AT & T (NYSE: T) he said that the streaming giant’s data traffic has reached all-time highs and also video streaming in general. Netflix has reduced the quality of its flows in Europe and Canada to reduce the load on the Internet and prevent it from “breaking” due to growing demand. As more and more people broadcast content, users consume much more bandwidth, which makes it difficult for service providers to guarantee access to a quality Internet connection for everyone.
Given the lack of entertainment options for people who are stuck at home, Netflix is an easy choice. There are also browser add-ons that people can use to have a virtual “Netflix Party” so they can watch a movie or TV show synced with other people, even if they’re not physically together. And with over 1,500 TV shows and over 4,000 movies to choose from, Netflix has a large catalog that offers users many options to choose from.
The company has focused heavily on growing its content and also on international subscribers. At the end of 2019, Netflix had 106,047 paid subscriptions in its international segment. This is almost double the 57,834 it had at the end of 2017. It is also well above the 61,043 paid domestic subscribers that the company had at the end of last year. The international segment is a fundamental part of Netflix’s future growth as it continuously expands and develops its libraries in other countries.
Netflix’s revenue reached $ 20.2 billion in 2019, an increase of 28% over the previous year’s total of $ 15.8 billion. His 9.3% profit margin last year was also a big improvement over previous years, when it was not unusual for the streaming company to see less than 5% of its top line switch to net income.
Visa (NYSE: V) it is a good supply to buy if there is a pandemic or not. With people staying at home and many companies offering only delivery, consumers may have to rely on credit cards more than ever before. Avoiding cash is also a way to help follow social distancing rules by using online credit cards or contactless payments.
However, this is not to say that coronavirus is not negatively affecting Visa. The credit card company saw transaction volumes fall in March because there are fewer expenses for restaurants, entertainment and other recreational and social activities. Although users may need credit cards, it is likely that the total amount spent on the Visa network will remain low until the economy returns and runs at full capacity.
With many stores not working and the economy looking much weaker for the foreseeable future, it will be a difficult time for both Visa and rivals MasterCard (NYSE: MA) during this pandemic. While the volume of transactions will continue to be strong, there will be a decline as consumers suffer job losses and have less disposable income.
In fiscal 2019, Visa posted sales of $ 23 billion and net profit was slightly above half that amount, which is $ 12 billion. The company was a profit-making machine, with its profits doubled from a net income of $ 6 billion just three years earlier.
What is the best purchase of the three?
These three titles have all gone in very different directions so far in 2020.
Given the volatility in the cannabis industry so far this year, Canopy Growth is the riskiest of the three today; for most investors, the choice will be Netflix or Visa.
The credit card company is the only one on this list that offers a dividend. But at 0.78%, it is relatively modest and well below the 2% that investors can achieve on average with an average S&P 500 action. However, with stock trading at 28 times its earnings compared to the earnings almost 90 times that Netflix trades in, it is a much better value purchase. For the record, Canopy Growth has reported a loss in each of its last four quarterly reports.
For value and dividend investors, Visa is the safe choice today and for the long term. But if you are a growth oriented investor, then Netflix may be the most attractive option today, given its popularity and strong audience.