It seems not so long ago that the biggest concern for investors was when the Tesla (NASDAQ: TSLA) hype-train was going to stop steamrolling the market, or whether exciting Richard Branson-led space company Virgin Galactic (NYSE: SPCE) could actually deliver on its wild promises.
Ah, the days of bullish optimism, how I yearn for their sweet naivety once more.
Of course, those days were mere weeks ago, as the COVID-19 took rapid hold of the market, and the longest bull market in history quickly became a bear market, with the economy now barreling towards a recession. The recent downturn has left many young (and some old) investors asking the same questions:
However, despite all this doom and gloom, it is important to note that, even in the case of a recession, certain businesses are much more likely to weather the storm than others.
What companies will survive a recession?
This may be quite a misleading question, as I am no more a fortune teller than Elon Musk is a divine being, despite his best efforts to convince us otherwise.
Speaking of megalomaniacal CEOs with plans for world domination, what bigger name in business is there right now than Amazon (NASDAQ: AMZN)? Jeff Bezos’ little e-commerce project is the perfect example of a company that may actually see its profits increase due to the coronavirus. It is certainly faring better than other Big Tech companies as people who have been forced into isolation turn to online-shopping to keep themselves sane and socially distant. Compared to the S&P 500’s (NYSEARCA: VOO) 33% drop in the past month, Amazon is only down 9%.
Amazon is still the same company it has always been, which generated nearly $90 billion in revenue last quarter alone, with U.S. and international sales up 22% and 14% respectively. Its winning formula and cash-printing Amazon Web Service leave it in a strong position, regardless of a recession.
Even harder hit companies such as Apple (NASDAQ: AAPL) and Microsoft (NASDAQ: MSFT) are nowhere near in danger of ‘going under’ as many smaller companies might be. Apple itself has close to $207 billion in cash reserves, making it one of the most cash-rich companies in the U.S. This money, should it not be used to simply buy out a rival company such as Disney (NYSE: DIS), could go a long way in shoring up its COVID-19-related losses. Even with the loss of its trillion-dollar status lately and a decline in Asian iPhone sales, Apple’s stock price is still up 15% year-on-year.
Microsoft too has been forced to review its guidance during the coronavirus outbreak, but for many of the same reasons as Apple, it is simply too big to be damned by one economic downturn. Even with its Slack (NYSE: WORK) competitor, Microsoft Teams, crashing last week as million began working from home, it is unlikely that its growth will be affected.
These companies will recover from a recession, others however…
Large-cap stocks such as those above and other Big Tech members Facebook (NASDAQ: FB) and Google (NASDAQ: GOOG) have little to worry about in terms of survival. Other stocks have even proved to be largely immune to the coronavirus, with teleconferencing-software Zoom (NASDAQ: ZM) and even Netflix (NASDAQ: NFLX) reaping the benefits of an isolated population.
If anything, the current market sell-off represents a unique opportunity to get some of the world’s most valuable stocks at a discounted price, despite their business models not changing at all. I am sure Berkshire Hathaway (NYSE: BRK.B) CEO Warren Buffett is using some of his $120 billion cash reserves to shore up his already massive positions in Apple and Bank of America (NYSE: BAC).
However, while these titans of industry somewhat struggle through a tough time in the market, other companies are desperately bidding to keep their heads above water. One such example includes Jack Dorsey-led Square (NYSE: SQ), which has fallen more than 50% in the past month. After a wonderful 2019 and so much promise for 2020, it is now seeing its most important client base — small businesses — being forced to shut their doors. To quote my colleague Mike, a long-time Square fan and shareholder:
The fact of the matter is that Square’s seller ecosystem, which it has cultivated for years, will take a big hit over the next few months, and it will take a considerable time to rebuild it.
It’s a difficult time for everyone, but it’s obvious that some companies are much better situated than others.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.
Editor at MyWallSt
Jamie is the Content Editor here at MyWallSt. His favorite stock is Apple, which is also the first stock he ever bought. Jamie is not only a big fan of its products, but he believes that the tech giant has a whole lot more to give the world, and hasn't even scraped the surface of its potential.