“Survival Mode” Lifts Sales, Share Prices
Consumers hunkering down at home to wait out the COVID-19 scare are boosting sales and share prices for companies making and selling canned food, toilet paper, survival gear, and video games.
Clorox, which makes disinfectant wipes, has seen its share price gain 7 percent. Video game maker Electronic Arts’ stock price has edged up 0.4 percent. Kroger, which owns grocery and convenience stores, has risen 19 percent in market value since the Dow’s February peak.
Campbell Soup Co. has led the gainers with its best performance in 20 years. On 26 February, shares shot up 10 percent in one day.
Pharma giants Gilead and Pfizer have gained value as investors look to them to develop and market coronavirus tests and cures.
Stock Buybacks a Virus Victim
U.S. corporations have used an estimated $1 trillion of 2017’s federal tax cut to buy back their own stock, pushing prices higher. The amount they spent in 2019 alone was about $780 billion, one of the main sources of money pumping up stock markets.
The combination of the global economic slowdown and the virus epidemic has ended that buying spree.
Companies have planned about $122 billion in buybacks through February, according to analytical firm Birinyi Associates, down 50 percent from the same period a year earlier and the slowest pace since the cut took effect.
Dow Jones estimates that buybacks were down 18 percent during 2019’s final quarter.
So far this year, companies that have been among the biggest buyers of their own stocks have underperformed. The Invesco Buyback Achievers ETF lost 16 percent recently, while the S&P overall lost only half that during the same time.
In contrast, some corporations see the market crash as a buying opportunity.
AT&T has announced it will spend an additional $4 billion to take its shares off the market. Hilton Worldwide is adding $2 billion of its own stock to its holdings.
Apple still has to complete a planned $58 billion in self-stock purchases. Union Pacific has yet to complete a $24-billion buyback, and Intel’s $23-billion purchase is still pending.
TREND FORECAST: For the foreseeable future, the great stock buy-back craze – which, by reducing the total number of shares outstanding, potentially boosts stock prices as demand outstrips supply – has ended.
Indeed, last Sunday, major banks such as JPMorgan Chase, Bank of America, Citigroup, Morgan Stanley, Wells Fargo, and Goldman Sachs said in a statement that because of coronavirus hit on the markets, they would stop stock buybacks through the second quarter of the year.
Since the start of the year, Citi shares have fallen more than 36 percent, while JPMorgan and Morgan Stanley are both down more than 25 percent.
