Welcome to Pandemic Portfolio, a bi-weekly series from Corporate Knights and the Toronto Star that spotlights companies relatively well positioned to weather the economic storm triggered by COVID-19.
The stock market’s reaction to the COVID-19 pandemic was swift and harsh, crashing more than 33 per cent in about a month. The market has bounced back somewhat from those mid-March lows, sparking optimistic talk of a “V-shaped recovery,” where the economy quickly returns to normal, though RBC CEO Dave McKay suggests a longer downturn, with a “U-shaped recovery,” is more likely.
Bank CEOs warn that we should prepare for a recovery period that spills into next year, so let’s examine a handful of eco-friendly companies that will continue to profit during a longer period of pandemic-induced economic pain.
Note: These are investment ideas, not recommendations. Speak to a financial professional before investing and ensure that any holdings are part of a more diversified investment strategy.
I would have never picked toilet paper to be the hot commodity as society faces a global pandemic, but here we are. Cascades is a Quebec-based company that makes tissue paper and packaging from recycled materials. The company is the most sustainable toilet paper manufacturer in Canada and is well positioned to take advantage of the growing demand for eco-friendly home-delivery and takeout packaging.
Long considered a leader in developing a closed-loop or circular economy, Cascades uses recycled fibres for 84 per cent of its paper products. The remaining materials are sourced using a strict procurement policy that prioritizes fibre suppliers certified by the Forest Stewardship Council (FSC). In 2015, Cascades set ambitious sustainability targets for 2020, and I’m excited to see how much further they’ll push the targets with their next five-year plan. Cascades was #49 on the 2020 Corporate Knights Most Sustainable Companies in the World list.
Cascades’ share price didn’t dip much in the initial crash, and is up 16 per cent over the past two months. The stock is expected to pay a 2.54 per cent annual dividend.
The pandemic is forcing everybody to work from home, and Microsoft — the world’s largest company — is perfectly placed to profit from this massive transition in our economy’s workforce. Consumer device sales will likely drop as unemployment rises and people are less likely to upgrade their phones and computers, but only about 36 per cent of Microsoft’s revenue comes from personal computers and gaming. Its other segments include productivity and business processes and Intelligent Cloud. My instinct is that demand for these business-to-business segments will be resilient to the current economic current and will likely benefit as old-school businesses evolve to become completely or much more remote.
Microsoft is highly rated by environmental, social and governance (ESG) rating agencies including Corporate Knights, MSCI and Sustainalytics, and the company has pledged to become carbon negative by 2030. However, Microsoft did come under pressure last year when employees threatened to walk out after it signed a big contract with the U.S. military.
It’s hard to argue that Microsoft is leading us directly into a green economy, but it’s fair to classify it as “doing less harm” and ahead of the curve on corporate responsibility measurements.
Microsoft’s share price initially fell by 27 per cent, but rebounded nicely such that it is only down 5 per cent over the past two months. The stock is expected to pay a 1.19 per cent annual dividend.
Brookfield Renewable Partners
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Brookfield Renewable Partners, the renewable energy division of Brookfield Asset Management that generates electricity through hydro, wind and solar projects, is well positioned to resist the current economic storm. (Full disclosure: The author owns shares of Brookfield Renewable Partners).
I consider Brookfield Renewable Partners pandemic-proof because the company’s revenue comes from multi-decade purchase price agreements (PPAs) to sell electricity at a pre-set price. Electricity demand is falling as factories are locked down, yes, but that doesn’t affect the price that Brookfield Renewable gets paid for generating electricity. The weighted average remaining duration of these contracts is about 17 years, so investors can reasonably expect the company to maintain consistent cashflows. Brookfield Renewable Partners seems to be on solid financial footing, having just raised $ 350 million in green bonds.
I’ve criticized Brookfield Renewable Partners in the past for not reporting sustainability data, so I’m thrilled to see that it’s produced a detailed ESG report for 2019. Now that the company is finally disclosing data, I expect it to start popping up more regularly on lists of sustainability leaders. About 2 per cent of its energy portfolio comes from relatively carbon-intensive natural gas co-generation (also known as combined heat and power), so although it isn’t quite 100 per cent renewable, I still consider it to be green.
Brookfield Renewable Partner’s share price fell by 30 per cent like the rest of the market during the crash, but has recouped more than two-thirds of that loss in the rebound. The stock is expected to pay a generous 4.82 per cent annual dividend.