The Australian economy is in turmoil and is facing significant headwinds over at least the short-term. The economy is facing a demand and supply shock. The demand shock is due to economic agents not willing or able to buy domestic goods and services from Australian business due to fears concerning the spread of the coronavirus (COVID-19). The supply shock is due to the sudden cut in supply from Australian business that import goods from overseas supply chains. It is likely that the Australian economy will report in the March and June quarters negative economic growth, resulting in Australia’s first recession since 1991.
It is important for investors to recognise these realities as it may impact investment strategies. A possible investment strategy in these uncertain times is to focus on businesses that do not depend solely on the success of the Australian economy. This could mitigate potential losses in the coming months if COVID-19 is not contained. The 3 stocks that investors could consider where the success of the business does not solely depend on the Australian economy is CSL Ltd (ASX: CSL), InvoCare Ltd (ASX: IVC) and ASX Ltd (ASX: ASX).
CSL Ltd (CSL) is a global company that develops and manufactures biopharmaceutical products mainly derived from blood plasma. It also develops and manufactures influenza vaccines.
CSL had a strong HY20 reporting performance. CSL reported net profit after tax (NPAT) for HY20 is US$1,248, up 11% in constant currency (CC) terms compared with the corresponding period. In February 2020, CSL also upgraded its FY20 NPAT guidance, it is now expected to be in the range of approximately US$2,110 million - US$2,170 million in CC terms representing approximately 10-13% growth over FY19. CSL is yet to revise this guidance.
CSL is shielded from the economic impacts of COVID-19. CSL announced (13 March 2020) that their supply chain has not been interrupted and will continue to provide medicines around the world as per normal. This is positive news for CSL, as their operations and financial performance appear to be relatively unaffected by the current environment.
InvoCare Ltd (InvoCare) is a leading provider of funeral services in Australia, New Zealand and in Singapore. It is also operating private cemeteries and crematoria in Australia.
InvoCare business operations do not depend solely on the success of the Australian economy, which allows InvoCare to be well position in the current environment. InvoCare had a strong HY20 reporting performance with a NPAT increasing by 54.6% compared with the corresponding period.
Ultimately, FY20 earnings and beyond will be driven by the death rate as well as the renovated facilities providing InvoCare with a competitive advantage. Over the long term, deaths in Australia are expected to increase by around 2.3% per annum rate. However, COVID-19 could cause an increase to the average death rate at least of the short-term, which could increase profitability.
ASX Ltd (ASX) operates the Australian Stock Exchange (ASX) and the Sydney Futures Exchange (SFE), offering a full suite of services including listings, trading, clearing and settlement.
ASX reported a sound HY20 earnings result, with NPAT increasing by 1.8%. Interestingly, since the heightened concerns around COVID-19 started at the beginning of March, daily trading volumes have significantly increased on the ASX and SFE. This is a positive for ASX Ltd, as the number of daily trades increases so does revenue and profitability.
This business is well position to not be adversely affected by COVID-19, as the fundamentals of the business does not directly depend on health of the economy.
This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).
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