All recessions and economic downturns cause a degree of fallout. Indeed, when stock prices plummet as they have recently in the wake of the COVID-19 pandemic, businesses and stockholders suffer for it. Conventional wisdom may suggest that large, premium brands may be poised to take the biggest hits. After all, recessions affect all levels of the economy. And during a recession, shoppers are supposed to prefer cheaper, non-branded value products. Except, real-life doesn’t work that way.
The truth is that big brands are still about as safe of an investment as possible –– regardless of how long a recession lasts. We’ll explain further here:
One big reason why large companies are perfectly positioned to manage recessions is that they can operate at a loss for longer than their competitors. Plain and simple, organizations like Starbucks have far more resources than independent coffee shops. So while a recession will affect the stock of big brands in the short-term, the longer a recession goes on, the more likely it is that smaller companies will begin to significantly cut back or even fold. This means that big brands –– that will survive the coronavirus –– will be poised to expand their market share when business “as normal” returns.
Another advantage that massive brands hold over their competitors is their ability to process and fulfill orders without brick-and-mortar locations. It’s no wonder that Amazon has seen it’s most successful few months ever this year. Similarly, large businesses that are able to maintain e-commerce functionality –– which at this point is basically all of them –– will not see a supply-chain disruption and will continue to service their customers. What’s more, customers are likely to appreciate large brands that manage to supply them with products –– both essential and non-essential –– during the lockdown.
Are Any Large Brands in Trouble?
Much has been made of the plight of industries like hospitality or air travel. And while it’s possible that one or two major companies may go under during the lockdown, the vast majority will see their way to the “other side.” Indeed, with every state now easing lockdown restrictions, it’s a matter of time before these fields see some level of resurgence. We’re already starting to see certain post-coronavirus trends take shape.
The Bottom Line
Strange though it may sound, patient investors are in a prime position to continue reaping big profits –– provided that they continue to support the largest brands. Of course, it’s not a bad idea to invest in certain industries or companies that are booming right now. Supporting a business that manufactures lab equipment like 2 ml cryotubes, for instance, is probably a good idea. However, in the main, most investors can rest easy with a simple, conservative investment plan.