What Companies Are Doing Well In the Covid-19 Era?

by James Hendrickson on May 5, 2020 · 0 comments

What companies are doing well in the Covid-19 era

There hasn’t been a lot of good information about which companies are more likely to survive in the Covid-19 era.  This seems trivial, but for investors it’s important.  Past histories of pandemics suggest they reoccur over a period of months or years. For example the Spanish Flu in 1918 had three waves (here). This means if you are investing in individual stocks, you’ll want to consider their long term vulnerability to pandemic related shocks.

There is some good research being published about which types of companies had their share prices hold up during the Covid-19 stock market crash.  The research isn’t surprising: well run companies that behave ethically do better in pandemics.

Here is a good paper from NBER (a non-profit economic think tank I follow), with the evidence.

Corporate Immunity to the COVID-19 Pandemic

Wenzhi Ding, Ross Levine, Chen Lin, Wensi Xie

NBER Working Paper No. 27055
Issued in April 2020
NBER Program(s):Corporate Finance

Using data on over 6,000 firms across 56 economies during the first quarter of 2020, we evaluate the connection between corporate characteristics and stock price reactions to COVID-19 cases. We find that the pandemic-induced drop in stock prices was milder among firms with (a) stronger pre-2020 finances (more cash, less debt, and larger profits), (b) less exposure to COVID-19 through global supply chains and customer locations, (c) more CSR activities, and (d) less entrenched executives. Furthermore, the stock prices of firms with greater hedge fund ownership performed worse, and those of firms with larger non-financial corporate ownership performed better. We believe ours is the first paper to assess international, cross-firm stock price reactions to COVID-19 as functions of these pre-shock corporate characteristics.

Link here.

What Companies Are Doing Well In the Covid-19 Era?

In non-academic terms, the research basically says companies whose share prices held up during the Covid-19 crash had specific characteristics.

They had:

1. Non-hedge fund ownership (because hedge funds are likely to sell in a crisis and don’t have long term commitments to corporate success)
2. Stronger balance sheets (less leverage, more cash, better ROI)
3. Were location independent, with customers and suppliers not exposed to COVID-19 supply chain disruptions
4. Have high community trust and are good corporate citizens.

None of this is really surprising.  But, its nice to see that sometimes the world works in predictable ways.

For more great investing articles, read these:

The Best Time To Buy And Sell Mutual Funds

What To Do In A Market Crash For Retirement Savings

Ten Factors Affecting Your Wealth

Building Wealth On $600 Per Month

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