Like most investors, the charts on my watchlists all share the same pattern of relentless, vertical selling. As the COVID-19 pandemic sends global markets into turmoil, investors have been quick to hit the sell button and liquidate their portfolios.
Despite the doom and gloom, there are a few companies on the ASX whose share price has held up reasonably well despite the volatility.
Here are 2 ASX shares that have developed an immunity to COVID-19 and managed to buck the market trend.
A2 Milk Company Ltd (ASX: A2M)
Amazingly, the a2 Milk share price has actually edged higher in 2020. Shares in the infant formula company have remained stable following a2 Milk's impressive half-year report and speculation that Chinese demand for its products could actually increase.
Late last month, a2 Milk reported its half-year results for FY20, which highlighted a 31.6% increase in total revenue to NZ$806.7 million and a 21.1% increase in net profit after tax to NZ$184.9 million. The company's strong performance was fuelled by strong growth in the sale of infant formula in China. a2 Milk's half-year balance sheet also revealed that the company had very strong operating cash flow of NZ$160.6 million and a cash balance of NZ$618.4 million.
The impact of COVID-19 on the company's demand and supply chains was also addressed by a2 Milk. The company maintains that products will continue to be in high demand from Chinese consumers as they look to stockpile products. As a result, a2 Milk has forecasted its earnings before interest, tax, depreciation and amortisation (EBITDA) margin to remain in the 29%-30% range for the full-year.
Last week, equity analysts at Citi released a bullish note on a2 Milk and retained their buy rating on the company with a $19.20 price target. Analysts cited a2 Milk's strong balance sheet and sector performance as great positives for the long term.
Coles Group Ltd (ASX: COL)
The share price of supermarket giant Coles has also tracked higher since the start of 2020. Coles and other supermarkets have been flooded with demand as panic-buyers raid shelves and stockpile essentials. According to equity analysts at Citi, supermarket sales for the week should surpass Christmas week sales.
According to analysts, the widespread buying could see Coles post some of the best third-quarter sales figures in years. The company is expected to get a $15 million to $30 million boost to full-year earnings before interest and tax (EBIT) as a result of the panic-buying.
Last week, analysts at Macquarie retained their outperform rating on Coles and issued a share price target of $17.20. According to the research note, Australian supermarkets like Coles are immune to the impacts of the coronavirus pandemic due to their exposure in the consumer staples sector.
Should you buy?
In my opinion, any company that performs strongly in the current market environment is either a great long-term hold, or has skimmed under the radar of bearish investors. I think it's dangerous to assume that a company is immune to the COVID-19 pandemic as the ramifications remain uncertain.
I think it would be wise to keep a2 Milk and Coles on watch and wait for market conditions to consolidate before making an investment decision.
