4 Stocks to Make Your Portfolio Immune to the Second Covid Wave

Apr 6, 2021

Richa Agarwal, Research analyst

My WhatsApp and office chat groups are awash with 'Maharashtra Covid Guidelines'.

Most services barring 'essential' ones are likely to be restricted in the state.

Cafes and hotels that had barely come back to life after months of lockdown are once again staring at a possibility of a business shutdown.

The second wave of Covid is here. The Sensex has crashed over 1,000 points yesterday.

Today, it's in just one state but given the rise in cases, more could join.

Almost a year ago, we found ourselves in the same situation.

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Similar, yet so different.

We were dealing with an 'unknown' unknown then. The Coronavirus was a new kind of disruption, something that had not been seen or anticipated in decades.

Last year, there were neither vaccines nor antibodies. We had no clue how the economy, markets and businesses would adapt and evolve to this situation, if at all.

After a complete lockdown, the economy is well on its way to recovery.

From a decline of 7.1%, GDP is expected to recover in the range of 10.5% to 12.6%. In real terms, it suggests a growth over pre-covid levels.

The companies in the listed (non-financial) space have reported profits higher than the pre-covid quarters.

The order books for niche leaders look stronger with multi-year revenue visibility. As we wrote to you, even real estate is showing signs of a revival.

The dissimilarities don't end here.

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A year ago, while markets had recovered from the sharp crash in March, most of the stocks were still cheap.

You could have picked any stock. Chances are good you would be sitting on a decent return today.

But things are different now...

There has been more than 50% and 100% rallies in the Sensex and smallcap index respectively in last one year.

While there is a great potential to make money in certain stocks, it's more crucial to be highly selective now.

One thing that we have learnt over the last year is that it helps to bet on businesses that have it in them to survive unseen risks.

You can account for any number of variables in your financial models and yet, some event that you never foresaw could decide the fate of the stock.

In short, successful investing is more about preparing well rather than predicting and then making your bets.

Most restaurants, hotels, cafes, entertainment parks, airlines, travel companies, and multiplex businesses are unlikely to make it to the list of such 'prepared' businesses.

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What will most likely make the cut is some essential/critical businesses, where the companies are unlikely to be shut down, or go out of business despite the macro shocks.

So without further ado, here are four companies I believe will survive the unseen risks. I cannot name them here, but I like them a lot and want to share my opinion.

  1. This company is a critical supplier to players like HUL, Nestle, Cadbury, Britannia, Coca Cola, Dabur, Marico, and P&G, to name a few. You could call it a proxy on India's consumption story.

    This business is unlikely to fade away irrespective of macro disruptions. If anything, a shift in the market share from unorganised to organised players is likely to boost its prospects.

    To be sure, betting on these may not get you a hundred bagger but in an environment rife with speculations and volatility, it's a decent return. That is certainty what I'm looking for, rather than depending on luck and probability.

    And the stock of this company makes the cut on these parameters. Hidden Treasure subscribers can read the report here.
  2. This second company in this list is the world's largest player in a niche segment. Its product falls in the essential category. This global leader enjoys unique competitive advantages that are hard to replicate by its peers.

    With its unique asset light model, tech expertise, and pricing arrangements with its clients, the company has been able to sustain and even grow its margins in a business which is otherwise commoditised.

    It's at an inflection point in its journey. It's moving from mainly being a B2B (business to business) to B2C (business to customer) player. Going forward, we expect sales and margins to grow on the back of incremental capacities and addition of value-added products.

    Hidden Treasure subscribers can read the recommendation report here.
  3. The third stock is in agribusiness. It offers a product that plays a key role in India's food security. With almost 10% market share in its niche, it supplies the most essential ingredient to the most important sector of the economy.

    For the first 9 months of FY21, the company has reported a revenue and net profit growth of 12% and 30% respectively over last year. Being in a critical segment, it was business as usual for this company during the lockdowns.

    Even if more states impose lockdown in the coming weeks and months, I believe the company will continue on the growth path.

    Hidden Treasure subscribers can read about the stock here.
  4. The last, but not least, is a firm that provides essential services to financial markets. This stock is the perfect vehicle to ride two of the biggest megatrends in India - financialisation and digitisation.

    The business is highly immune to macro shocks. A substantial part of its revenues are such that no matter what crisis strikes, its steady stream of income simply doesn't stop.

    In the last 12 months, even when the Covid cases have been on a rise, this business is witnessing a positive trend in a key statistic. The cherry on the cake is a very attractive dividend yield.

    Hidden Treasure subscribers can read the recommendation here.

For latest updates on these stocks, subscribers should keep a track of monthly performance review report.

For more such opportunities in the smallcap space, stay tuned. I will write to you about great opportunities to invest in smallcaps.

Warm regards,

Richa Agarwal
Richa Agarwal
Editor and Research Analyst, Hidden Treasure

PS: Dear reader, on Thursday, 15 April, Tanushree Banerjee, our expert on safe stock investing, will reveal potentially the greatest wealth-building event for your net worth. Join Tanushree at the India Revival Summit.

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