Who Will Be Long-Term Post-Pandemic Investment Winners?

Companies that achieved tech advantages (such as Microsoft) and pricing power (John Deere) will triumph, says JPM’s Jared Gross.



It’s no secret that COVID-19 disrupted the economy, hastening trends that were already building. But what companies stand to come out ahead long-term as a result of the pandemic-induced changes—and should be good bets for investors?

The answer: businesses that positioned themselves to benefit from the movement to the cloud and those that harnessed new technology to achieve better pricing power. This is the conclusion from a broad study of how the pandemic altered the economy by J.P. Morgan Asset Management. The principal beneficiaries, it predicts, range from tech giant Microsoft to farm equipment maker John Deere.

The report, “The Post-COVID World Comes Into Focus,” outlines how government fiscal outlays have expanded, moving the U.S. and other nations into an industrial policy previously shunned (example: Washington’s huge new program to boost domestic chip production). Other changes: a “re-wiring” of international trade toward a multi-polar system to minimize China’s influence and aging populations in developed countries that hasten dependence on new technology to overcome labor shortages.

“Government is playing a more critical role in the economy” than before, says the study’s main author, Jared Gross, the firm’s head of institutional portfolio strategy, in an interview. The U.S. economy has evolved so that there now is a “fiscal put,” with the federal government surpassing the Federal Reserve’s prominence, born of the need for government outlays to combat the pandemic, he says.

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Nonetheless, he adds, the government’s industrial policy “is not picking winners at the company level,” but rather altering the landscape via subsidies and tax breaks so that the strongest players emerging from the virus’ economic disruption can grow even more important in the future.

What might some of those well-positioned companies be?

The study highlights Microsoft for its strong position in cloud computing. Second only to Amazon, Microsoft’s cloud revenue has been expanding more quickly than the e-commerce megalith since the pandemic’s onset. Cloud infrastructure—computing, networking and storage—monetizes data, the amount of which doubles globally every 18 to 24 months, the report notes. “Data growth is not constrained” as are volumes of physical goods such as TVs and smartphones, Gross observes.

Artificial intelligence is another of Microsoft’s advantages, the report found. The company is the lead investor in OpenAI, the developer of the top generative AI app.  

Another company on JPM’s winners’ list is Infosys, an Indian IT service provider. “It facilitates the transition” of businesses to the cloud and other digital services, Gross says. Revenue growth was between 5% and 10% annually before COVID, then ballooned to 20% before falling back to its current 15%.

A third leader whose tech prowess has catapulted its revenue is Mercado Libre Inc., the biggest e-retailer in Latin America, which was founded in 1999 in Argentina and now has offices throughout South and Central America. “They have first-mover advantage there,” Gross says, comparing its rise to that of Amazon. The company continually adds more capabilities, including advertising and lending.  

The JPM study also spotlighted two other companies that have used technology to spring-load their returns: Old Dominion Freight Line, which specializes in small-quantity shipments (known as less-than-truckload), and Deere & Co., doing business as John Deere, the farm-equipment maker. Old Dominion has honed its logistical expertise and so has been able to escalate its prices. Deere has also improved its pricing power by furnishing farmers with data on where and how to plant their crops to get better yields.

Since pandemic lows in early 2020, these five companies have enjoyed rapid stock appreciation, doubling or tripling. Those performances beat that of the S&P 500, up 1.7 times since then.

To Gross, “These companies have better positioning and will see higher revenue and profitability.”


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CalPERS, CalSTRS, Genworth Among Those Affected by MOVEit Data Breach

Third-party vendor PBI Research Services is blamed for not initially revealing the scope of the hack.



The California Public Employees’ Retirement System, the California State Teachers Retirement System and Genworth Financial Inc. revealed that some of their clients’ personal information was involved in a data breach that hit third-party vendor PBI Research Services’ MOVEit Transfer Application, used by thousands of organizations. 

PBI provides services to pension funds to identify member deaths so that proper payments are made to retirees and beneficiaries and to prevent overpayments or other errors. For life insurance firms like Genworth, the company helps identify the possible eligibility of beneficiaries for death benefits or for policies beneficiaries may not know exist.

According to CalPERS, while the data breach did not impact its information systems, it did impact the personal information of approximately 769,000 members, including retired members, some of whom are inactive members and may soon be eligible for benefits. The pension fund is offering free credit monitoring to retirees and beneficiaries with impacted personal information and is also mailing tips on how to protect their information. CalPERS is also providing information on its website and through its customer contact center.

“This external breach of information is inexcusable,” CalPERS CEO Marcie Frost said in a release. “Our members deserve better. As soon as we learned about what happened, we took fast action to protect our members’ financial interests, as well as steps to ensure long-term protections.”

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According to CalPERS, PBI reported the hack to federal law enforcement and told CalPERS it has resolved the vulnerability, while also adding additional security measures. The pension fund also stated that in response to the breach, it has taken “several additional and immediate actions to secure its members’ benefits,” including new protocols on the member benefits website, myCalPERS, and additional safeguards for users of the member contact center and for participants who visit any CalPERS regional office.

Although CalSTRS and CalPERS were first notified of the breach on June 4 and June 6, respectively, CalPERS said it took more than two weeks to notify members because PBI’s initial communication “did not provide sufficient detail as to the scope of the data that was impacted and the individuals to which that data belonged,” adding that, “we share the frustrations this third-party vendor breach has created for CalPERS members and their families.”

According to an emailed statement, PBI uses Progress Software’s MOVEit file transfer application with multiple clients, and at the end of May, Progress Software identified a “zero-day vulnerability” in the MOVEit software that was actively being exploited by cyber criminals.

“PBI promptly patched its instance of MOVEit, assembled a team of cybersecurity and privacy specialists, notified federal law enforcement and contacted potentially impacted clients,” the company stated. “The cyber criminals did not gain access to PBI’s other systems—access was only gained to the MOVEit administrative portal subject to the vulnerability.  PBI is working directly with impacted clients to identify impacted consumers and develop notice plans.”

CalSTRS stated via email that the hack did not involve unauthorized access to its network; however, it is working with PBI to identify the CalSTRS members whose information was involved. The pension fund intends to provide notice to members and beneficiaries whose personal information was involved, “in accordance with applicable law.”

Genworth declined to elaborate on its June 22 SEC filing, in which it said it was notified by PBI of the breach and that it “believes that the personal information of a significant number of insurance policyholders or other customers of its life insurance businesses was unlawfully accessed.” Genworth stated it is “working to ensure that protection services are provided to those impacted individuals” and that it believes the breach did not impact any of its information systems, including its financial systems, and that there has not been any material interruption of its business operations.

 

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