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COVID-19, ComfortDelgro and the new normal.

Monday, June 1, 2020

This blog is my reply to a reader's question on ComfortDelgro.

My reply:

All types of public transportation businesses are under immense pressure from the crisis created by the COVID-19 pandemic.

The worst hit sub sector is, of course, the airlines as they are heavily leveraged and have enormous CAPEX and OPEX.

The airlines can also be considered less essential compared to land transport businesses.

So, I am reasonably comfortable with holding on to my investment in ComfortDelgro which isn't bleeding as compared to an airline like SIA, for example.

After all, ComfortDelgro is operating essential public transportation businesses and, of course, also VICOM.

Having said this, until a safe and effective vaccine for COVID-19 becomes widely available, we will not see such businesses recovering to pre COVID-19 levels anytime soon as people should be avoiding crowded places as much as possible.

It follows that although ComfortDelgro remains in my portfolio as an investment for income, realistically, I should be prepared for a reduction in income generated from this investment.

If we add to our investment in ComfortDelgro as an investor for income, we have to keep this high probability possibility in mind.

As for whether the current price is a reasonable one to invest in ComfortDelgro, as you probably know, I have avoided answering such questions for a long time now.

What I would say is that, as investors, whether we think a stock price is reasonable or not should logically be guided by what we can reasonably ascertain in terms of its earnings visibility.

For investors for income, the willingness of a business to distribute a part of its earnings to its shareholders is also a pertinent consideration.

See this blog on my past assumptions which led to me investing in ComfortDelgro, for example:

An incomplete analysis of ComfortDelgro.

At the start of the COVID-19 crisis, I expected things to progress very much like it did during the SARS (i.e. Severe Acute Respiratory Syndrome) crisis in 2003 but, as things turned out, it didn't.

The situation we are in now is surely much worse than the SARS crisis ever was.

Just look at the billions of dollars our government has dished out to rescue workers and businesses so far.

In comparison, the SARS crisis was significantly less costly a crisis.

The crisis caused by the COVID-19 pandemic is global and it also simply refuses to go away.

I don't know how long it will take before we see things going back to the old normal.

Honestly, I doubt that anyone really has the answer except for Donald Trump.

However, it is reasonable to assume that the longer we have to wait for a safe and effective vaccine to become widely available, the longer the new normal we have now will stay.

The longer the new normal stays, the more it becomes entrenched.

Working from home and less going out for any reason will surely reduce the need for public transportation in all forms.

The Singapore government has even said that anyone who can work from home should continue to work from home even after Circuit Breaker restrictions are lifted.

That is ominous.

I am much more cautious during this crisis compared to the Global Financial Crisis (GFC) because the damage to many businesses is surely more devastating and the deleterious effects could be long lasting this time.

Since I am less sanguine about ComfortDelgro's earnings now than I was just a few months before, I might add to my investment only when its stock trades at its NAV or a discount to its NAV because that provides me with a greater margin of safety.

This is a real possibility and would mean we could see ComfortDelgro's stock price at a lower low than what was formed on 23 March 2020.

Looking at the charts, the weakness in ComfortDelgro's stock price is stark.

The 50 days moving average is still declining.

The MACD, a momentum oscillator, is still in negative territory and has just formed a bearish crossover.

The downtrend is very much intact and there is no sign of a trend reversal.

Of course, like I always say, technical analysis (TA) is about probability and not certainty.

Have a plan, your own plan.

In the meantime, do the responsible thing and help to keep everyone safe.

We are #SGUnited.

Related posts:
1. Investing in ComfortDelgro and locking in gains.
2. Buffett thinks it is going to get worse.

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