COVID-19: Forecasting Growth and Evolving Corporate Values

April 24, 2020

 

First and foremost, I hope all my readers and their loved ones are safe and healthy during these difficult times. 

 

COVID-19 continues to harm the foundations of global markets. Investors have seen unprecedented volatility during these times of economic restriction. According to the Labor Department, over 26 million Americans have filed for unemployment. Although the government is testing new forms of relief for the unemployed and small businesses, the complexities surrounding the virus make these efforts ineffective in reducing overall risk. 

 

With a vaccine or some form of medicinal control expected in 2021, investors must be prepared for changes in industrial and consumer dynamics.

 

I will discuss where I see potential growth regarding specific sectors. I will further discuss the nature of a "second wave" and its potential effects on the market. Additionally, I will evaluate how companies focused on social good will end up on the right side of the market after the virus slows down. 

 

Growth

I have a bullish outlook on companies centered or invested in plant-based protein. The market is seeing a shortage of products from meat companies given consumer concerns with the presence of the virus in livestock. 13 large-scale meat plants have already closed across the nation. According to data from Bloomberg, there has been a 25% and 10% reduction in pork and beef availability, respectively. Consequently, the prices of beef and comparable meat products - adjusted for inflation - have risen to all-time highs in the past. It is plausible to assume that price and safety concerns may alter consumers' focus toward plant-based protein.

 

Asian markets are already seeing demand for plant-based protein over traditional meat. Recently, Beyond Meat (BYND) entered a partnership with Starbucks (SBUX) to roll out its products across thousands of Starbucks locations in China. It is reasonable to anticipate a similar rollout in North America given a continued reduction in quantity from traditional meat markets. According to a Reuters article, the overall plant-based protein sector was expected to grow 20% by 2023 before COVID concerns. That figure should be expected to significantly increase.

 

Although BYND is the most notable public player in the plant-based protein sector, there are questionable financials that give surface-level concerns with any long-term holds. BYND is overvalued, trading roughly 13x over forward sales. There are also revenue expectation concerns given forecasted growth was assigned to be between 64-71% for 2020 coupled with an overall slowed down consumption market. However, the partnership with Starbucks provides intangible metrics - which will be discussed further - that can drastically improve growth. BYND has also seen rare success in a turbulent market, posting gains of roughly 43% YTD. 

 

Consequently, investors should look at markets that may see upward attraction based on how wide-scale consumers' interests are with plant-based proteins. Amazon (AMZN) could be an enticing option given their ownership with Whole Foods and a surge in demand for all forms of deliveries. 

 

Second Wave

Similar to the 1918 Flu Pandemic, nations are preparing for a gloomy second-wave of the virus that is expected to occur in the fall. The virus would  occur in tandem with the flu, which would magnify the issues of limited hospital and clinic space. Officials across the globe are concerned about efforts to reopen local economies as soon as possible. In America, states such as Georgia may speed up the presence of a second wave and create more instability in the market.

 

I feel that the moral dilemma created by reopening the economy and saving jobs and families versus containing the virus is too significant a decision for any government official to make. Given that the evolution of the virus is outpacing modern science, it is very hard to forecast which direction would be more beneficial to the nation.

 

Regarding the market, the anticipation of a second-wave can cut into essential jobs. Adjusting for a second-wave, economists anticipate the unemployment rate in America to rise to 13%. Roughly 40% of those in the finance sector reported having lower hours due to the virus. As many companies are cutting wages and firing employees, a second-wave would kill the backends of companies teetering around their bottom lines now. 

 

Corporate Values

Companies now more than ever find a balance between allocating focus on social responsibility and fiscal operations. As a result, I think companies that are financially capable that focus on stakeholders over their bottom line can have better long-term benefits for companies after the virus.

 

Starbucks has displayed tremendous leadership concerning social responsibility. Initially, CEO Kevin Johnson stated that all employees would receive a full month's pay regardless of if they came into work or not as well as a pay raise for those who do work. The company recently announced it would also give free coffees to healthcare and other essential workers till the end of May.

 

Placing the interests of employees and consumers ahead of their financial interests gives Starbucks tremendous intangibles - P/R, good corporate image, etc. - that they can leverage over their competitors. These values would drive customer-retention and establish a culture that would further differentiate their products from the rest. 

 

Although health is of the utmost concern right now and going forward, it is critical to evaluate how companies are handling the unprecedented situation and navigate risk going forward.

 

Final Take: Buy and hold BYND (Risk and Growth) | AMZN , SBUX (Stability)

 

 

 

I do not own shares of any of the companies mentioned above. This is strictly my analysis and opinion. Financial actions should not be based solely upon the opinions of one article. Please read my disclaimer for further information.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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