Cash-rich firms more resilient amid pandemic
Investments in companies with strong finances help safeguard returns during market crises because businesses with ample cash will be better able to cope with challenges and recover faster than others.
Cash-rich companies are in much better shape to weather market crises amid the impact of the COVID-19 pandemic than their peers on the stock market, said VNDirect Securities Corporation (VNDS).
“The COVID-19 pandemic has not only caused a global disruption but also threatened to bring about a worldwide economic recession,” stated the newly released report by VNDS.
Investments in companies with strong finances help safeguard returns during market crises because businesses with ample cash will be better able to cope with challenges and recover faster than others, VNDS said.
“At this time, the COVID-19 pandemic acts like a natural selection process, opening up new business opportunities, especially for businesses with strong financial capacity to gain market share, leaving their opponents far behind,” VNDS said.
VNDirect Securities Corporation has filtered out businesses with abundant cash balances to help investors determine the stocks with high investment potential.
To classify businesses, VNDirect applied a filtering method to all 1,023 stocks on the three floors of HoSE, HNX and UPCOM, excluding companies in the banking, insurance and securities VNDirect.
Under VNDS's filtering method, a cash-rich company has average weekly liquidity, or matched volume, of more than 10,000 shares; market capitalisation of over VND200 billion (US$8.5 million), net cash/market capitalisation ratio of more than 50 per cent and debt/equity ratio lower than 1.
Based on the filtered list, VNDS expects recovery from oil and gas stocks such as Petrovietnam Fertilizer & Chemicals Corporation (DPM), PetroVietnam Technical Services Corporation (PVS), PetroVietnam Oil Corporation (OIL) and PetroVietNam Low Pressure Gas Distribution JSC (PGD).
The industrial real estate and logistics stock groups are also expected to recover faster than other sectors thanks to the movement of capital from China to Viet Nam and free trade agreements involving Viet Nam.
Meanwhile, the construction industry, especially the civil construction sector, is not tipped for success due to the gloomy real estate market in 2020.
Despite rising demand for housing, the postponement of project licensing and capital pressure will weigh on real estate developers in the post-disease period, VDNS said. — VNS
