During February, the financial media started to use the “B” word. Not that “B” word. Bubble. Valuations have been driven by a few things. First, the growth in money supply (see below) means more dollars are chasing the same assets. Also influencing valuations is the most recent retail investor frenzy – meme stocks. The “meme stock” stories are being compared by some to the tech mania in the late 1990’s. What’s caught my eye is the recent trend of investor money flowing into post-COVID companies (cruise lines, restaurants) as the vaccination rollout moves forward. With valuations near highs I want my portfolio protected, regardless of how the year plays out.
Betting on post-COVID stocks seems premature to me because of the new strains and the unknown unknowns that may follow full vaccination. This inflow of investor money to post-COVID stocks does have me thinking about what kind of companies will benefit whether the new strains of COVID continue to grow or are stamped out by the vaccines. What trends took hold during 2020 that can last into the future when physical distancing is no longer necessary?
A Permanent Shift in Consumer Behaviour
Health and wellness seems like a smart bet. It was a $4.5 trillion industry before the pandemic started and spending increased significantly during 2020. Experts are saying the changes towards more health and wellness spending may represent a permanent shift for consumers. Beth McGroarty, vice president of research at the Global Wellness Institute put it simply: “the case for the wellness concept and wellness markets post-pandemic looks very bullish.”.
Prior to the pandemic (from 2014 to 2019) retail specialists had identified a growing market in the “wellness” category, which includes eating healthier, fitness, and meditation. Telehealth adoption is one service that gained momentum during 2020. The pandemic accelerated adoption of telehealth services from 11% to 46%, according to a survey from McKinsey. Telehealth remains a better option than visiting a doctor after the pandemic, too. Online fitness classes, on the other hand, would be expected to lose most of their subscribers when customers can return to physical facilities.
Categories That Win in Both Cases
So, some businesses, like gyms, may see a slower comeback. But the products being ordered online for use at home or outside of the home can offer a blend of security and optionality for your portfolio (if COVID fades away faster than expected). Gymshark was started in 2012 by a 19 year old while living with his parents. Today it is valued at over $1.4B. I expect Nike, Under Armour, and Lululemon are also benefiting from growing online sales as we try to stay fit.
Another product category that seems well positioned is the various supplements that have become attached to any fitness regimen. Protein powders and other supplements can experience growth regardless of whether the vaccine rollout is fast or slow.
Global food prices rise during 2020 and experts are expecting them to continue to rise during 2021. A United Nations measure of food prices rose 18% between May 2020 and January 2021. At the same time, consumers are adopting more health-conscious lifestyles. Data on food spending shows categories viewed as healthier, such as organic foods, got a lift during 2020.
A survey from The International Food Information Council in 2020 found that 54% of consumers (and 63% of those aged 50+) care more about the healthfulness of their food and beverages, compared to 2010. Organic food in particular has potential benefits ranging from containing fewer pesticides to being richer in nutrients.
The challenge when it comes to organic food, especially for the large number of people who are unemployed, is the cost. Organic food has a history of being more expensive. I think consumers are considering spending more to improve their overall health in the years after the pandemic. We all saw the impact that a stronger immune system can have on a person’s life.
So food prices generally rose around the world, but spending on “healthy” products such as organics experienced an extra boost from consumers’ desire to pursue healthier habits.
Room for New Entrants
In a July 2020 article from McKinsey, it was noted that a “shock to loyalty” is occurring among consumer packaged goods. That means established brands are being reconsidered, creating room for new brands to gain market share. Now could be a good time to enter the market with an organic product that promotes better health. Even better if that product can show an environmental benefit as we’ve seen consumers are willing to pay a premium for eco-friendly brands.
It’s best to get exposure to post-COVID upside from continued growth without a high likelihood of loss if 2021 isn’t the year COVID is eliminated. Consider companies that are offering consumers a healthier lifestyle, whether they’re in their house or back to the “new normal”.
Thank You For Your Loyal Readership
The Financial Star Team.