The Covid-19 pandemic has had a whiplash effect on some companies, which have gone from hero to zero and then climbed back into favour again. Now the focus is on who can best survive a recession.

“There was a period where people were just trying to work out what companies would survive and what companies might go out of business,” said Matt Peek, New Zealand equities portfolio manager at Fisher Funds. “We really didn’t know what was going to happen in the world, let alone financial markets.

“But then some of them obviously benefited.”

Fisher & Paykel Healthcare, whose breathing devices help treat people with Covid-19, experienced unprecedented demand for its products, selling 10 years’ worth of devices in two years.

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Investors wanting a piece of the action propelled Fisher & Paykel’s share price to a high of $37.68 in 2020, helping it become the first Kiwi company on the NZX to be worth more than $20 billion.

However the demand for Fisher & Paykel fell away as the pandemic stabilised and investors struggled to gauge the outlook for future sales, which saw the shares sink to a low of $18.10 in October.

“There was a bit of an unwind of some of that Covid exuberance,” Peek said. “If there’s one thing that the sharemarket hates, it’s uncertainty and investors were trying to recalibrate where some of these companies would end up after all that goodness was unwound.

“There was that dynamic of Covid being a tailwind and then the market really not wanting to have anything to do with them when they were going through this painful hangover where there was a lack of clarity about when the business would turn the corner again.”

Still, investors have been more upbeat since the company’s first-half profit result last month amid optimism that a decline in demand may be over after hospitals worked through their excess inventory. The stock is now up more than 20% from its low, trading above $22.


Today on The Detail Emile Donovan talks to Sam Dickie, a senior portfolio manager at Fisher Funds, to talk about the company’s roller coaster ride, and how one of its greatest strengths has become its greatest weakness.

Similarly, The a2 Milk Company surged in the early stages of the pandemic as customers in its largest market, China, stocked up their pantries with supplies amid fears they might struggle to get key products like infant formula in the future.

The specialty milk marketer posted a record annual profit in 2020 and its shares reached a record $21.51.

However the good times didn’t last, and the company hit the skids as closed borders and slower demand following the earlier stockpiling hit sales, causing annual profit to slump 79% in 2021.

A2’s shares slumped from their lofty heights to touch $4.34 in May, their lowest level in almost five years. They have since recovered to trade above $7, up more than 60% from its low, after the company’s performance improved and it returned to growth, with 2022 annual profit up 52%.

“Fisher and Paykel and A2 did really well at the early onset of Covid because people wanted these products that were necessities and then they were almost victims of their own success as investors questioned how they could follow that up,” Peek noted.

“They’ve fallen on harder times early this year because people were focused on how long this was going to last and were concerned that profits might be lower than we had expected.

Fisher Funds portfolio manager Matt Peek says with a recession looming, investors are now paying a premium for defensive stocks.


Fisher Funds portfolio manager Matt Peek says with a recession looming, investors are now paying a premium for defensive stocks.

“People became pessimistic on these companies and had written them off. But once some of these quality growth companies found their feet again and people realised that actually these are businesses that can continue to grow over the long term, the reaction can be quite positive.

“It can go full circle and then full circle again. The market can be very fickle and short term. What hasn’t changed is they are both quality businesses that have products that people want and that can grow over time.”

Other companies to benefit from the pandemic include digital donation service Pushpay, transport and logistics company Mainfreight, and online retailers like My Food Bag.

Companies that did it tough during that period included those with strong links to tourism such as Air New Zealand, Auckland International Airport and Tourism Holdings, or those that relied on public gatherings such as cinema software company Vista Group International.

While their share prices are now bouncing back from low levels, most are not back to their pre-Covid levels yet as tourism has yet to fully recover with big markets such as China still not open, Peek said.

In an environment of rising interest rates with a recession in the wings, investors were now favouring more defensive stocks that were considered a safer bet, he said.

“At the moment, everyone wants to be in defensive companies where there’s not much earnings risk,” Peek said. “Investors are putting a premium on those companies at the moment.”

Stocks that have been doing well in this environment include companies with resilient earnings such as electricity company Meridian Energy, telecommunications company Spark, network company Chorus, and healthcare distributor Ebos.

Still, Peek warns that while defensive companies could fall out of favour if the economy outperforms.

“When people get more risk appetite and want to own other companies that have better growth prospects, that premium will probably go away,” he said. “Even though they are flavour of the month at the moment, at some point, they might end up underperforming because people will want companies with a better growth trajectory.”

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