I.n the next four weeks, the stock market will clean up. The reporting season that has just started for the period from March to June should be exciting for many investors. Some will hope that the courses have rightly gone well again and that the balance sheets are not quite as catastrophic as expected. The others may speculate exactly on this and expect again significant discounts on the stock exchanges. This “disappointment potential” would then be the right time for (re) entry for the group of investors with the “missed feeling”.
The starting point is the same for everyone: the corona crisis is one of the greatest economic crises ever. However, unlike previous crises, this crisis was not triggered by the financial sector or investors. Rather, it was a first.
A virus and how to deal with it completely freeze the global economic system and send the world into a “stay at home” recession: where the consumer is forced to stay at home, there is no need to be a producer.
Of course there are the “profiteers of the corona crisis”. Companies in the field of digitization, online trading or the Internet. But companies like Apple, Amazon, Netflix or Microsoft would have successfully expanded their business even without the pandemic. Ultimately, Corona was just an accelerator.
To invest in such stocks makes sense for a long-term oriented investor and will probably also bring a nice return in the coming years. But what about other stocks in the “Profits from the Corona Crisis” category?
Recently Drägerwerk was always happy to be placed in this category. This is understandable, because Lübeck, who was still sick last year, has equipped many hospitals with ventilators for people suffering from Covid-19. Demand had skyrocketed, sales in the second quarter increased by more than a quarter to around 788 million euros. Ebit was more than 100 million euros, after a loss of 1.5 million euros in the same quarter of the previous year.
After the strong second quarter, the Lübeck-based company raised its annual forecast, and the stock has been experiencing a high for weeks. The share price has increased by more than 50 percent since the beginning of the year. No wonder given news like this: On Thursday, Drägerwerk announced that it had been awarded the contract for the supply of respiratory masks (FFP3) by the British government. The delivery of the masks is scheduled to start in 2020 and will continue into the following year. The expected turnover is around 100 million euros.
Drägerwerk is definitely a (short-term) profiteer from the corona crisis – but also a sustainable one? If there is ever a vaccine against Corona, the demand for Drägerwerk products will probably normalize again. On the stock exchange, however, “normal” is rather boring and has no imagination for great price gains. It will be interesting to see how the Drägerwerk share will be listed in one year. Drägerwerk is only a current example of how some investors are currently (short-term) acting on the stock exchange.
There are profiteers from the Corona crisis, but the majority of companies will probably deliver catastrophic figures for the second quarter. Most of the outlooks are also likely to be very cautious if you dare to make a forecast on the executive floors. For this, the announcements about austerity measures will probably be the order of the day. Investments that are not absolutely necessary are postponed.
Corporations have to fight
Even if investors prefer to stock up on America’s high-tech stocks on the stock exchange – in Germany, among other things, the auto industry and, generally speaking, mechanical engineering are still an important pillar of the domestic economy. For companies in this area, the second quarter will be a quarter of horror. Supply chain problems and slumps in demand will have hit the balance sheets.
However, what benefits the corporations – this is the result of an EY study – is their full coffers: At € 95 billion, the Dax members still had substantial liquid funds at the end of the first quarter. “In the course of the first quarter, some companies were able to keep their financial cushion stable, in part thanks to higher cash outflows and the issuance of bonds,” explains EY Managing Director Mathieu Meyer. This means that they are also equipped for a longer dry spell.
This in turn will only reassure most investors to a limited extent. Many investors consider it “normal” that the Dax has been soaring during the greatest crisis of the past 100 years. The biggest argument for the high prices: The lack of alternatives to equity investments.
However, investors should continue to enjoy this stock boom, which has given the broad American S&P 500 index the best quarterly performance in two decades, with caution and bear in mind that the (many) unsolved problems of the “pre-corona period” are already here “Coming to the surface: Among other things, the trade dispute between America and China, the trade tensions on the part of America with Europe, an inconsistent OPEC, the potential default of Argentina and last but not least, the United States will elect a president this year.
This is a mixed situation in which investors should only assume to a limited extent that prices (in the short to medium term) will continue to rise. Even if many investors will see it as stale – the good old stock picking method will appear to be more than hip in the near future.