At a quick glance, the bad news appears to be piling on. The global economic fallout from the coronavirus continues to roil the stock market. On top of this – although unrelated – U.S. stocks dropped significantly on Monday apparently due to investor anxiety over a crude oil price war.
At Fenimore, our focus is on digging beneath the surface to uncover the facts that will help you, and us, make rational, informed investment decisions for the long term.
As always, our investment research analysts are closely monitoring our holdings, as well as many other businesses, and building an understanding of the potential impacts on these companies and the economy.* Here are our latest insights, which include some breaks in the clouds:
- China’s disruption was sudden and severe, but there are signs the country is improving already. Several companies have reported manufacturing production capacity improving and transportation constraints easing. Another noted its operations are stabilizing, with staff returning to work and nearly all suppliers back online. On the retail side, Starbucks (not held in Fenimore’s portfolios) has re-opened many stores and expects all stores to be open by the end of March after a 78% drop in comparable store sales in China during February.
- Although supply chains were interrupted, the impact on the U.S. seems to be moderate so far. The timing of the virus outbreak coincided with the Chinese New Year, when factories traditionally shut down for weeks at a time. Anticipating this, U.S. businesses typically stock up on Chinese inventory going into the holiday. Also, with tariffs having increased the cost of goods made in China, many U.S. companies have tried to mitigate the effect over the last 12 to 18 months by diversifying their supply chain into other countries.
- The coronavirus’ U.S. impact is growing, but there is a silver lining for some industries. Clearly, there will be an impact on our economy, but it is too early to quantify. So far, much of the effect has been in travel and lodging due to government and corporate travel restrictions. But, national wholesalers and many grocery stores are seeing an uptick in sales driven by demand for essentials such as food, beverages, and disinfectants. Industrial suppliers are seeing a considerable boost in orders for products such as masks and gloves, and teleconferencing firms are seeing significantly increased usage as well.
- Fenimore is built for times like today. Our Investment Research Team continually seeks to mitigate risk and be prepared for turbulent markets and challenging economic conditions with our time-tested investment process. No one knows the future, but it’s our experience that being invested in a select number of quality companies that are financially strong, generate significant cash profits and have skilled, ethical management teams should keep us well-positioned for both the near and long term.
- We are also looking for buying opportunities. There are a number of quality businesses that we have been studying for some time, but waiting for a discounted price. The timing may be right to invest in new holdings and add to some of our current holdings.
We hope our perspective, and the long-term approach that has served Fenimore well for decades, helps to reinforce your confidence at this time. If you’d like to speak with one of our associates, don’t hesitate to call (800) 721-5391 or schedule an appointment in Albany or Cobleskill. Thank you.
* Company Reports & FactSet as of 3/6/20