The economic crisis brought about by the COVID-19 pandemic has caused us all to worry about our investment portfolios.
A wide swath of industries has been adversely impacted by the lockdowns and movement restrictions brought about by this unprecedented event.
However, human ingenuity and innovation have come together during tough times to lead a path for businesses to not only survive but achieve growth too.
Management quality and resourcefulness have also taken centre stage when it comes to successfully navigating through challenges.
That’s why it’s important to select strong companies to invest in as they stand a better chance of riding through crises.
Some may even gain market share at the expense of the competition as they are better equipped and well-capitalised.
Here are three signs you can look out for to assess if your stock can sail through the current crisis.
Businesses that have a strong balance sheet stand a better chance of riding through crises unscathed.
If a company has a high cash balance and low or zero debt, it does not have to worry about keeping up with interest payments to their lenders.
One example would be VICOM Limited (SGX: WJP), a testing and inspection company that provides a comprehensive range of testing for vehicles and materials.
Despite a tough first half result that saw its revenue and net profit plunge by 22% and 30%, respectively, investors need not feel overly worried as its balance sheet contained no debt and around S$80.8 million of cash, which should allow it to have sufficient buffer to survive this crisis.
Moreover, the group was still generating healthy free cash flow of around S$9.1 million during this period.
Similarly, Haw Par Corporation Ltd (SGX: H02), a manufacturer and distributor of healthcare products under the famous Tiger Balm brand, suffered a 44% year on year fall in revenue and a 19% year on year drop in net profit.
However, the group’s balance sheet held S$580.1 million of cash with zero debt.
Its clean balance sheet, along with dividends received from its investments, should help tide it through these headwinds.
Darwin’s theory of Natural Selection postulates that animals evolve and carry forward selective characteristics that enable them to survive over generations.
When push comes to shove, some businesses may be forced to evolve and adapt to new conditions. A more nimble company that is able to adapt to the changing circumstances stands a higher chance of surviving this crisis.
A great example was reported in the paper last week, where a local fashion label, Ginlee Studio, adapted to Singapore’s circuit breaker measures by taking pre-orders in May.
During the circuit breaker period, pre-orders grew to make up 80% of the business’s total orders.
Pre-ordering helped the business to plan as supply chain disruptions were widespread.
Not only is planning enhanced, but uncertainty is also lowered, waste is reduced, and customers are locked-in.
A third sign that a business can survive COVID-19 is the extent that it embraces digitalisation.
This is particularly applicable for consumer-facing industries. It has also become necessary as many employees have been forced to work from home.
Let’s face it: even before the pandemic hit, more and more people were going online to shop for goods and make payments.
For a business, having an online presence has become a necessity these days and is not merely an option.
COVID-19 has significantly accelerated the shift to online payment methods and boosted e-commerce volumes.
For businesses that have physical outlets or operate brick-and-mortar retail shopfronts, widespread lockdowns have forced temporary closures across the globe.
Companies that have spent time building up a strong digital presence and platform could not only continue taking orders throughout the pandemic but also thrived where its competitors fell short.
Take Nike (NYSE: NKE) for instance.
The sports footwear and apparel giant reported that its digital sales soared 82% year on year in the company’s fiscal first quarter, which ended in August.
Nike is on track to report digital sales making up 50% of its total revenue in the coming years.
Coffee giant Starbucks (NASDAQ: SBUX) and Mexican restaurant chain Chipotle Mexican Grill (NYSE: CMG) have also leveraged the power of digital channels to their advantage.
Starbucks saw mobile order sales mix hit 23% in its latest quarter and has launched a WeChat Mini program including Starbucks Delivers in May.
Along with other digital initiatives, it has seen its 90-day active members on its Rewards Program increase 9% year on year to almost 10 million members.
For Chipotle, its digital sales grew 216.3% year on year during its second quarter and accounted for nearly 61% of total revenue.
The company also announced that its annual Halloween celebration, aptly called “Boorito”, will go entirely digital for the first time.
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Disclaimer: Royston Yang owns shares in VICOM Limited, Nike and Starbucks.