The coronavirus is a global pandemic that many of us haven’t seen in our lifetime. Between the economic shutdowns, stay-at-home mandates, and the general state of fear, the world has gone into a virtual shutdown. The economy and flow of business have come to a halt, and a lot of companies are going to struggle.
The way a company operates will be a major factor in how the businesses will fare after the coronavirus struggle is over. The types of growth they’ve experienced, the investments they’ve made, and the velocity they’ve tried to expand with will all be major factors in how well they’re able to weather the coronavirus storm.
The Incentive Structure Of Wall Street
This caused a lot of senior-level management teams to go into high speed and high chase management styles, favoring the short-term earnings beats over the long-term consistency or sustainability that is more likely to coincide with a gradual rise in a stock’s price.
Part of that mindset definitely makes a bit of sense. As Wall Street and investors have come to grow more and more impatient, management teams have felt more pressure to execute and perform. We can imagine a lot of these executives worked years and years to get to their senior-level management positions and haven’t been given the time they would’ve liked to build the company or business the way they would’ve liked to.
In business, especially with massive companies, this is a recipe for disaster. Big businesses need time to figure out different angles, different products, and different services in order to be successful in the marketplace. A lot of this takes time and trial and error, a luxury many of these executives don’t have.
But for companies that have taken a long-term approach to growing their business, the impending economic recession could allow them to pull away from the pack. This formula, shown by a few companies, will position them to bounce back strongly from the global coronavirus pandemic.
The first company that we believe is well situated to weather the coronavirus storm is Apple Inc AAPL. The company’s underlying business model, primarily the iPhone, and the ecosystem that’s interconnected through it—the App Store, iTunes, and iCloud— are all going to be utilized during this time of shutdown. They might even experience greater numbers during the isolation period, as people will be buying movies, playing games, and working more online than they ever have before. It might be tough to roll out a new iPhone during this time, even though they’ve just released a new MacBook Air, but their business prospects outlook is incredibly positive.
Another incredibly important factor that makes Apple a great stock to own during these times is the amount of cash its been sitting on. This cash pile that Apple has maintained during the last few years is going to be incredibly important and critical to their business model going forward. With $39 billion dollars in cash on its balance sheet, Apple is going to be well-positioned to make some major moves, whether that’s going into a new business, purchasing or acquiring a new company, or finding new opportunities where others are constrained.
The way Apple has grown and expanded over the course of the last few years has positioned them incredibly well during this time of economic uncertainty. They’ve stuck to what they know best, have upgraded, and built up an incredible cash pile, and have waited for the right time to make a move.
Now, as the coronavirus has come upon us, they are in a strong financial position and ready to take advantage of the massive decline in values across the board. Whether they intend to ride out the storm and stick to their guns, or come out guns blazing and start making aggressive acquisitions, other companies and industries are going to be severely discounted, and ready to be plucked by a behemoth like Apple.
The other company I believe is well-positioned during this time is Berkshire Hathaway (NYSE: BRK-B). Warren Buffett’s conglomerate is ready to weather the cloud of economic uncertainty and capitalize on the recent decline. Buffett has taken a perspective that many investors have tried to utilize, but few have actually been able to embrace it. He invests in companies with the assumption that he will not see returns for the next five years. This is n incredible way to invest, and an amazing strategy that’s made him one of the most legendary investors of our time.
Right now, with business coming to a halt and the flow of commerce basically shut off, his strategy looks better than ever before. The companies he’s invested in all have incredibly dependable and sustainable business models. He’ll forego the short-term yield, or fast increases in growth, for companies that are going to be around for a long time. This way, he gives them the opportunity to grow their businesses, without putting massive pressure on them to meet and beat expectations in the short-term, shifting their focus to building companies and businesses for the long term.
Analysts have for years praised and revered the strategy that Buffett utilizes. He has been able to truly understand and grasp the way investing and business operates, and is a major reason why his company is poised to not only grow during this period of economic uncertainty but capitalize on it.
Berkshire Hathaway is currently sitting on a stockpile of roughly $64 billion in cash. He’s been ready and waiting for prices to decline, and now finds himself in the driver’s seat with a lot of cash on hand—similar to the way he struck several incredible deals during the 2008 financial crisis.
At a time when few have the economic wherewithal, he’s positioned and ready to make investments at prices that are much lower than what they once were. He’s now able to be, as he put it best, “Be fearful when others are greedy, and greedy when others are fearful.”
The Coronavirus pandemic has sent markets into a frenzy and has created an incredible uncertainty in the markets. There are few companies that are truly ready to capitalize on this time of immense economic uncertainty.
Companies that have built themselves by taking on debt and focusing on short-term growth could be in trouble here. They will see their market capitalizations and market shares evaporate. But the few who will be able to weather the storm, and make it out of this economic uncertainty not only surviving, but thriving will be the ones to own, and the ones to prosper in the years to come. This why I like Apple and Berkshire Hathaway—two companies with stable business models that are built for the long haul.
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