There are several issues that investors need to look at when picking investments as we, hopefully, come out of the covid-19 medical and economic crisis. Here are our thoughts on the subject.
Which Growth Stocks Will Grow in the Covid-19 Era?
If you have stayed in the tech stocks like Apple and Microsoft, you have companies with large cash reserves and which are positioned to take advantage of a continued switch to online work and increasing reliance on the internet. And, if you have stuck with basic consumer goods stocks, people will keep buying soap, cleaners, basic foods, and beer but these later stocks are somewhat defensive as they will not double or triple in value but rather protect your wealth during tough times. We looked briefly at pharmaceutical stocks as the covid-19 crisis hit and noted that it will take time for a vaccine or medications and that folks who make masks (like 3M) and sanitizers are better in the short term. Covid-19 era investment risks include expecting growth stocks in areas like hospitality or transportation to come back in the near term as the world will probably be different for quite some time.
How Soon Do You Need Your Investment Capital?
The current economic crisis will not really get better until we get an effective vaccine to inoculate the entire world or an effective and cheap medicine to treat everyone. The earliest any of this will happen is perhaps a year from now and that is not guaranteed. If you are jumping into the market today looking to lock in bargains, you need to make sure that you can let your money sit until things get better. For a prolonged recession that could be years. If you need to have your funds available sooner, you need to consider how to invest without losing any money in the short term. Interest rates are low but if you stay short term with bonds and CDs, your money will not be lost and will be available when you need it.
Beware of Cheap Investments in the Covid-19 Era
The St. Louis Dispatch has a useful article in this regard, Why Penny Stocks Aren’t the Answer to Investing During a Recession.
Penny stocks tend to trade at low valuations because the underlying businesses aren’t in good shape or there’s little visibility into their operations and outlook. It is possible to find companies in the penny-stock category that go on to post strong business performance and great stock returns, but the odds are stacked against you.
Buying penny stocks tends to have more in common with gambling than with principled, well-reasoned investing. Companies in the category often have weak balance sheets, generate little in the way of revenue or earnings, and are typically speculatively valued. These types of companies are especially prone to folding amid the heightened operating pressures created in a recession.
They go on to note that these factors are more important during a recession when it is the weak company who stock goes down while those with strong balance sheets and continued sales do not suffer as much.
The point in all of this is to be careful as you invest your wealth in preparation for a strong economic recovery. New week we will look at covid-19 era investment opportunities.