This article is written in partnership with Investor-One.com, a financial portal that focuses on bringing you key research surrounding small and mid-cap stocks within the Singapore Exchange.
The world will never be the same again. The COVID-19 pandemic has shifted our understanding of just how fragile our society can be. It also shows us how seemingly “safe” businesses might not be safe investments after all.
Many businesses are forced to reinvent themselves or they would not be able to survive this crisis. Restaurants change to focus on takeaway meals, hotels are turning into quarantine centres and retail stores are using online platforms to promote their products.
However, to truly survive the crisis, a company would need more than these short-term measures. So as investors, how can we identify stocks that have a better chance of surviving this crisis? Here are 4 things that can help us improve our chances.
Cash is King
The key reason why a company would face bankruptcy risk during a crisis is when it no longer has enough cash to keep its operations running. So, the most important factor for us to monitor is the cash balance of the company. We will use Straco Corporation (SGX: S85) as an example here. Straco Corporation is a tourism asset owner with tourism assets in China and Singapore. In Singapore, it is the owner of the Singapore Flyer. So, its business is greatly affected by the current situation and we have to see if it can survive the crisis.
Straco Corp Asset: The Singapore Flyer
The amazing thing about Straco Corp is its cash coffer. It has about S$200 million in cash while having an operational expense of just S$13 million per quarter. This means that in theory, even if Straco Corp is unable to earn any revenue during this period, it has enough cash to sustain its operations for close to four years, which is very strong.
Leverage Is A Double-Edged Sword
This showed us that Straco Corporation should not have an issue surviving the crisis even if it drags on for years. We can go one step further by looking into the debt level of the company as well.
As the short-term debt of Straco Corp is only S$13 million, it would not post a danger to the company as its cash level would be more than enough to repay this debt. Even including its long-term debt of S$57 million, the company would still have enough cash to repay all its debt.
This exercise shows us that such a simple check would give us more confidence in whether our stocks would or would not survive the crisis. For Straco Corporation, the company might be one of the strongest companies on SGX to survive the crisis. If you want to gain a deeper understanding of Straco Corporation, you can also check out the full analysis done on Investor-One here. The team at Investor-One used their specially selected 4 financial metrics to provide a well-rounded analysis of the company.
How Flexible Can Management Be?
During a crisis, it is the best time to see the true character of the management of a company. If management is willing to make hard decisions to ensure the survival of the company, it will have a much better chance of thriving after the crisis. Management of higher caliber would be actively looking for ways to deal with the crisis, such as implementing cost-cutting measures or looking into new strategies to grow the business. However, weaker management might be finding excuses, in order to divert blame away from themselves.
Thus, during this period, it is the best time for us to learn more about companies and build up our potential watchlist of stocks we might want to invest in. However, instead of doing the research all by ourselves, using reliable and high-quality investment portal like Investor-One would greatly reduce our research time. Investor-One has a team of analysts publishing regular analyses on companies, making it a great place for us to start hunting for our next investment.
Finding Industrial Tailwinds
Lastly, not all industries are affected by this crisis. Some industries are actually benefiting from the current pandemic. Therefore, we might be able to grow our portfolio just by investing in the right industry. After all, a rising tide lifts all boats. This means instead of investing in companies that might recover from the pandemic, we can also look into companies that benefited from it.
Companies in the healthcare industry such as Riverstone Holdings Limited (SGX:AP4), Top Glove Corporation Berhad (SGX:BVA) or UG Healthcare Corporation Limited (SGX:41A) have all seen huge demand surges in their business. And as the emphasis on healthcare could be even stronger after this pandemic, these companies might continue to see growth in their business for years to come. In fact, Top Glove Corporation and Riverstone Holdings are some of my favourite medical stocks at the moment. You can check out the latest result of Top Glove Corporation here.
Among the technology industry, we have companies like AEM Holdings Limited (SGX:AWX) which was able to maintain its growth projection through these difficult times. The Chinese term for crisis is 危机. The term reminds us that during every crisis (危), there will be an opportunity (机) as well. If we are able to find the silver lining within this terrible pandemic, it might help us position our portfolio for the inevitable recovery soon.
By combining these four factors, we could start to make our portfolio much stronger during this pandemic and thrive after the crisis. Investor-One provides detailed analyses of many hidden gems within the Singapore market. Remember to check out Investor-One here to hunt for your next great investment idea.
This article is written in partnership with Investor-One.com, a financial portal that focuses on bringing you key research surrounding small and mid-cap stocks within the Singapore Exchange. You can check out Investor-One here.