Coronavirus second wave potential drives investment portfolio changes

Over the past few days, it has dawned on me that the coronavirus situation is unlikely to change anytime soon. Like most other people I thought we would find ourselves opening up our own borders. Then opening up to New Zealand, and then slowly to the rest of the world.

However, judging by Victoria, things are not looking like they will play out this way. If we are going to continue managing this in a conservative manner then we may be taking 2 steps forward and 1 step back potentially for a very long time.

While none of us can really do anything about that, we can definitely shape our investment portfolios to match our circumstances. 

Local travel

I think that Alliance Aviation Services Ltd (ASX: AQZ) is going to be the only airline to make anywhere near decent earnings over the short term. Coronavirus makes it seem unlikely we will open all our borders and keep them open. Big carriers like Qantas Airways Limited (ASX: QAN) carry overheads that are designed for a much larger operation.

The other likely beneficiary of local travel is likely to be Bapcor Ltd (ASX: BAP), a distributor of car parts and services. 

Discretionary items

The likelihood of large venues opening and staying open until coronavirus has been defeated is also small I feel. This rules out a lot of the fast fashion purchases from Lovisa Holdings Ltd (ASX: LOV). Even though I think its sales will increase compared with April and May.

I think we will continue to see good sales volumes through shops like Bunnings and Officeworks; businesses owned by Wesfarmers Ltd (ASX: WES). Wesfarmers also owns Catch, an online marketplace it recently purchased. Catch has increased its sales turnover by 68.7% in H2 FY20 so far against the previous corresponding period.

Payment processing

Depending on your investment horizon it may still be too soon to invest in shares like the Commonwealth Bank of Australia (ASX: CBA). In fact, I would be cautious of any share requiring long-term credit commitments of the general public.

However, short term credit organisations like Afterpay Ltd (ASX: APT) and Zip Co Ltd (ASX: Z1P) will likely continue to do well. Payment processing companies like Tyro Payments Ltd (ASX: TYR) will also continue to do well. None of these companies operate in a market that requires a total economic reopening. 

Foolish takeaway

The recent surge of coronavirus infections in Victoria has forced us to temper our expectations of how quickly we can open up the economy and our borders. I would consider focussing your investment portfolios on companies that have thrived over the past few months, rather than on companies that need a flawless return to normality. This isn’t meant to be negative, the market always throws us opportunities.

More reading

• How to try and beat the market with ASX shares
• ASIC hits Commonwealth Bank with civil proceedings
• 5 things to watch on the ASX 200 on Tuesday
• ASX 200 finishes flat, ASX travel shares drop
• Afterpay and 2 more ASX 200 shares to watch this week

Daryl Mather has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Tyro Payments and ZIPCOLTD FPO. The Motley Fool Australia owns shares of and has recommended Bapcor. The Motley Fool Australia owns shares of AFTERPAY T FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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