No one really knows what it will be like once Covid-19 finally recedes into history. I think nearly everyone has underestimated the extent to which this terrible virus will affect our lives. Evaluating what this means as an investor is a changing exercise.
There is a growing view among economists that we might see an economic depression. Others talk about creating a new way of structuring the economy — finding a system that works differently from what we had before.
No one knows where this will take us, but we can be sure that post-Covid-19, things will be different.
There is a big risk in applying analysis today, in times of such uncertainty when we all feel anxious, or maybe even a little frightened, to what things will be like afterwards. Our mood of the moment will influence what we think things will be like. Our mood post-Covid-19 will be very different. Maybe we will want to celebrate that it is over and get back to normal as soon as possible. Maybe we will be in shock. Maybe we will demand change.
I would say that the reality of all this is a long way from sinking in among the markets.
We can also say that companies will collapse. Jobs will be lost in their millions — indeed this literally happened last week in the US, with the biggest rise in new job claims ever recorded in the latest period.
Some companies, however, will come through to the other end with products people need.
Unilever’s chance
Some companies may even find unique opportunities to grow because they face less competition. Times of change create opportunities and risks.
Companies with strong balance sheets that sell essentials that are likely to be in demand after the crisis will, I suspect, be among the beneficiaries.
I might even go as far as to say of a company, the higher its net current asset value the more likely it is to flourish post-Covid-19
Unilever (LSE:ULVR) is an example of such a company. It has been winning plaudits already for the way it has reacted to this crisis — redirecting resources towards hand sanitisers, soaps, such as its Dove brand for example, bleach, and food products.
The company boasts a strong balance sheet, with €4.1bn in cash. It is also a big dividend payer, paying out a yield of around 3.67%. Just as importantly, its dividends have been growing steadily at around 7% a year for most of the last decade. Some big dividend payers may feel that once this crisis is over, they will need to reduce dividends in order to rebuild their balance sheet. I would have said that Unilever’s dividend is safer than most.
Unilever has also embraced technology in such a way that it is good at dealing with change.
No one can say for sure what will happen next. These are difficult times for all of us. But some companies will come out the end stronger than ever. I think there is a good chance Unilever will be such a company.
