In Focus: The Other Side of Crisis
Let me start off by saying first that I don't know when this current global crisis will be over. Timing when bull and bear markets will begin and end never works for me. We, me, you, the U.S., the economy, the world, we will get past this, and when we do I believe it's going to be very different on the other side for many businesses.
Having spent a decade plus in the auto insurance industry working from home was fairly common at many big insurers, especially for people who handle claims. One particular insurance company who was so behind the times, and only allowed their managers and supervisors limited home access did the impossible. This insurance company figured out how employees in their sales, claims, customer service, and underwriting departments could work from home, and they figured it out in a week.
All the functionality of working in the office has been duplicated for the remote worker. Incoming calls are being forwarded to cell phones, outgoing calls from cell phones still show the company's phone number. Managers are still able to see which reps are available to take calls, and which reps are working and which reps are not.
For companies all over the world, adaptation has been forced upon them, and some are doing more than just getting by. This new normal will give companies some important things to consider on the other side of this crisis, which could lead to big winners and big losers post crisis.
The Potential Losers
For big companies who've been able to pull off their staff working from home, there will be the questions,"Does everyone need to be in the office everyday?" And, "How much space do we really need?" According to the Bureau of Labor only 29% of Americans are able to work from home.
The dotcom era ushered in the workspace / playground vibe that places like Google and Facebook are known for. Over the years companies have put more effort into trying to keep employees happy and eager to be in the office, but that may change. If the ultimate goal is to have a productive employee, and if employees can be productive at home, why wouldn't companies promote more work from home?
This could be a big financial hit for the real estate industry all over the world, when current leases start to expire.
I'm also concerned about Starbucks. I haven't come across too many people who leave home to get Starbucks and then go back home to work. Whether I'm in New York or Florida I'm a miles or less from a Dunkin Donuts, and occasionally I would leave the house, get a cup of coffee, and then return home to work. But since buying a chemex coffee maker three years ago I haven't had Dunkin in the morning.
Starbucks is the publicly traded company and that's why I mention them first, but this could impact all the neighborhood coffee shops who are there for the crowds headed to work. Starbucks and others likely won't do the same amount of business if the work from home trend goes beyond the coronavirus pandemic.
Crude oil (CL=F) currently sits at $21.84 per barrel, which is ~$40 lower than where the price was per barrel at the end of 2019. Oil has been hit with oversupply issues due to the lack of demand created by the coronavirus. Also, the Saudi-Russia oil-price war has added to the decline in oil prices. If the other side of the crisis has more employees working from home and less driving to the office daily, oil demand could fall even further.
The current decline in demand, which has led to the drop in oil prices has put unexpected pressure on some small U.S. oil companies with shaky balance sheets. If the crisis lasts until the summer we could see a wave of small oil companies declare bankruptcy. If the normal work-from-home crowd increases as I expect, things in the energy sector could get interesting. Money spent on energy resources to get to work will be transferred to energy resources needed to run a home-work set-up.
Airlines could be losers as well on the other side. My thought is that business travel, for the immediate future will slow down. For companies who weren't experiencing a high rate of revenue growth, cutting expenses will be how those firms create value in the short run. There will be business travel, but I see a significant decrease coming. As I'll discuss later, Zoom has proven it's ready to handle most business communication needs.
Real Estate Industry
Oil & Gas
The Potential Winners
The insurance company I referred to earlier, had to find computers to give people to work from home, which they did. Again, just a reminder, this insurance company was so behind the curve. Other major insurance companies provide employees with the tools needed to work from home once they're hired.
I can imagine the other companies that didn't have a work-from-home protocol established also had to find computers and laptops to give their employees to keep business up and running. This could be a nice win for PC makers if on the other side of the crisis businesses purchase more machinery to accommodate their employees who work-from-home.
I've already discussed the impact for Zoom (ZM) in a previous writing. While I've known about Zoom for years and invested in Zoom, I'd never had the need to use it. But recently I've been using it a lot, and I'm sure I'm not the only one.
Retailers could be big winners after the crisis. If more of us are working from home, we're spending less on transportation, spending less on morning coffee, which adds up to a few hundred dollars in our hands every month. Most people in the money / investing business will tell you we're going to save the money, but not me, because that's not what we do. We're going to spend that new found money because we were used to spending it. New phone, maybe a new computer that's not for work, a new tablet, new furniture to make a part of home feel more like work. Money will move away from morning coffee and gasoline to something else.
The food delivery companies also stand to see big gains after the crisis. Most are seeing big increases in usage now as the public tries its best to adhere to social distancing. As we closed 2019 I thought this was an industry heading for massive consolidation with some contenders going out of business. Even with Forbes predicting it could be a $200 billion industry by 2025 I couldn't imagine all the players being able to participate and become profitable.
The food delivery business isn't new, and companies like DoorDash, Uber Eats, Postmates, and Grubhub to name a few appeared to me to be fighting for a large piece of an unprofitable pie. But hard times expose people to options they've previously overlooked, and this could be the time when people who've never used food delivery services or used them sparingly in the past, incorporate them in their daily lives.
Personal Computer Manufacturers and support (semiconductors, memory, etc.)
Zoom (other business communication tools)
Retailers (not money saved, but money that needs a new place to be spent)
Online Food Delivery
What are the odds that this list of potential losers and winners plays out as I've described post crisis? I don't know, but the longer the crisis persists, the more I think the odds are in my favor.
We all fight change, it's just a natural reaction. So there isn't anything surprising to me about the thousands of IG posts, tweets, and memes I've seen about being quarantined. But at some point, if this crisis lasts, we'll have to make our peace with it and establish our best selves and most productive selves in this new normal.
The new normal will bring a shift in social behavior and more importantly (because we're ultimately talking investments) a shift in investment dollars. Wall Street will shift money away from old winners that have become new losers, to expected new winners, so keep your ears and eyes open.
There are going to be signs, and investors should pay attention to those signs. A name you've heard only a few times before will start springing up in everyday conversation. Your co-workers will talk about it, your friends will speak about it, some people will question it's validity, others will swear by it. Pay attention, if that thing is a publicly traded company, it could be your golden ticket.
I was around when Starbucks hit the east coast and I still remember when it became a big thing, bigger than just a place to get coffee. I also remember when Amazon became a big thing and when it became bigger than just a website to buy books. I remember when Netflix became a big thing, (I still kick myself for not investing because all the signs were there). I remember when the Blackberry replaced the Sprint/Nextel chirp phone as the phone to have. I remember when Bitcoin went from really obscure, trading under $1 to getting media coverage because of the new phenomenon called Bitcoin mining. Bitcoin was still under $10 if I remember correctly.
There will be changes on the other side of the coronavirus crisis. Pay close attention, because that change could help you financially weather the next major crisis.