If you look at the recent technology stock boom, the upward stock price in tech stocks makes sense because people are shopping online and engaging more business online. Similarly, there is still great value in various sectors including: materials, energy, travel, utilities, banking, small-caps, and more. With less face-to-face business, many companies are using this opportunity to innovate their strategy to a leaner and more ecommerce friendly model.
Here are 20 reasons that some stocks may do better than you think this year.
- Interest rates & borrowing are at rock bottom prices. “The cost of money is at an all time low”.
- Energy and gas prices are relatively low and should remain low as per demand.
- Many businesses have moved to a leaner workforce which is saving big money.
- Companies are paying out less income, paying less taxes, and funding less benefits.
- Many companies are able to negotiate out of bad leases due to COVID-19. “Rents may be going down”
- Utility costs and office space utilities costs may also be down as workers are telecommuting.
- “Stock option” costs to companies may be down particularly if the strike prices are above the trading prices.
- Less city tax costs as employees are moving out of the cities and working from home.
- Individuals and companies may be getting of state taxes if they have relocated.
- The ability to capture casualty and theft losses has been boosted by new emergency laws.
- Companies are able to pay more employees as “1099 workers” or independent contractors who may also live outside of city and state “high tax regimes”.
- Many companies have adapted to online sales and direct logistics which is cutting costs for retail space, costs of theft, costs of insurance, costs of damage to goods, and so forth.
- Some companies will use this chaos as an opportunity to relocate offices and headquarters to “lower crime” and “no state tax” states such as TN, TX, FL etc.
- Many companies will move to an “e-commerce model” to strategically use suburban retail space or “out of city” warehouse space for employees, shipping, distribution, or storage.
- Reduced “ad valorem” taxes due to less inventory being in taxable jurisdictions.
- People working from home reduces: costs of space, furniture, meals, parking, real estate taxes etc.
- Reduced dividends and reduced buybacks in the short term will only increase cash and value of a stock.
- Companies, at this time, may have greater buying power to buy distressed inventory, distressed real estate etc.
- Costs of traditional marketing in football or TV may be reduced, while companies will refocus on various forms of tactical internet marketing.
- Some companies such as Robinhood may not be charging stock trade commissions while other companies have a reduced sales staff and reduced sales commissions. With online shopping, many customers are buying direct and companies are profiting directly by selling inventory that they don’t even own yet.
- Bonus Reason – The dollar’s strength may decrease which could increase exports to the other 95% of the world’s population.
Overall, the expansion of COVID-19 from China into the rest of the world has caused a dynamic shift in corporate behavior. It may not be necessary for companies, employees, or government employees to be located in expensive cities anymore. Organizations can be spread out into less costly jurisdictions. The result hopefully will be leaner corporate organizational charts and even leaner government agencies.
Talk to a licensed professional to find out where there is value and what types of stocks, ETFs, mutual funds and other investments may have growth potential. All of the reasons above can drive profits in spite of less employees or less gross income.
In the end, all of these cost savings, expenses, and deductions, and loss carry backs/forwards may be soon baked into the share price of publicly traded companies. Some companies profits could be down 30% or more, but their costs of doing business may be down 50%. So, we are not sure what the short term and long term results will be. However, these 20 conceptual points on costs and profit margins above may be overlooked at this time. This paradigm shift in expenses is food for thought for both economists and financial analysts.
George Mentz JD MBA CWM Chartered Wealth Manager ® is a licensed attorney and CEO of GAFM ® global education, which is an ISO 29990 Certified professional development company operating in over 50 nations. Mentz is an award-winning author and advisory board member to several companies around the world in education, charities, and FinTech Companies.
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