There are opportunities to be found in every crisis. Although COVID-19 has altered human behavior and wreaked havoc on economies around the world, it has also accelerated certain business trends. Tough times help separate great companies from mediocre ones. Though all players within an industry suffer in the short term, quality companies may offer great long-term value when the recovery arrives.
Your job as an investor is to sift through the wreckage to look for companies that will continue to shine even through the pandemic. During sharp market sell-offs, people tend to throw the baby out with the bathwater. Great companies get sold down along with mediocre ones, opening up golden opportunities to accumulate shares on the cheap. There's probably no better time than a market-roiling pandemic to search for such stocks.
The companies discussed below should be able to rise above the rest and continue to perform well over the long term.
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Mastercard
Mastercard (MA -0.74%) is a well-known name in the financial services and digital payments space. The company has a strong franchise and brand name, as well as a stellar track record of growth. For the first quarter of 2020, Mastercard recorded $1.57 trillion in worldwide gross dollar volume, up 8% year over year. The total number of cards (including Mastercard and Maestro) rose 5% year over year to 2.6 billion.
The pandemic and subsequent lockdowns and movement control measures led to a drastic but temporary dip in both transaction value and volume. Mastercard has introduced a four-phase structure to monitor spending levels relating to the COVID-19 pandemic: containment, stabilization, normalization, and growth. Back in April, both switched volumes and transactions were down between 20% to 30% year over year as the stabilization phase kicked in. This phase is characterized by lower spending levels due to compliance with social distancing regulations.
The situation has improved significantly since then. Transactions for the first three weeks of June saw an average of single-digit year-over-year declines, with the U.S. even displaying 5% year-over-year growth in switched volume in the week ended June 21. The company now believes that most markets are in the normalization phase. It may take more time for each market to enter the final phase. On the acquisition front, Mastercard just purchased Finicity for $825 million to strengthen its open banking capabilities and enable the company to offer a greater choice of financial services.
Starbucks
Starbucks (SBUX 0.43%) has been growing and expanding successfully over the last decade, opening numerous stores around the world. COVID-19 dealt a blow to the company's growth plans. Starbucks had to shutter many brick-and-mortar cafes due to lockdowns and movement control restrictions.
China is the company's main country for growth. February saw the worst of the pandemic's impact in the region, with comparable-store sales plunging 78% year over year. The situation has gradually improved as stores started to reopen. As of mid-June, 99% of stores in China are open, with 90% returning to pre-pandemic operating hours. Cafe sales increased in May, with 22% of sales coming from mobile orders as customers adopted new ordering habits.
Sales have also begun to show improvement in the U.S., with about 91% of company-operated stores open at the end of May. Loyalty offers and digital campaigns launched that month helped drive sales and reengage customers. The Starbucks mobile app saw a significant increase in average weekly downloads and activation. These trends bode well for the company and signal that a recovery could be gathering momentum, though it is still in its early days. Stores are also being modified to meet public health guidelines and accept more takeout orders.
Starbucks' impressive use of technology to drive sales and its digital flywheel strategy should continue to endear more customers to the brand. The pandemic has offered a window of opportunity to grab some shares cheaply as net income is temporarily impacted by store closures. With a strong culture of innovation and adaptation, the company should come out of the crisis relatively unscathed.
