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Are ASX 200 dairy shares like A2 Milk in the buy zone?

The S&P/ASX 200 Index (ASX: XJO) has been smashed in March but the Aussie dairy shares are holding their value. As it stands, the Bega Cheese Ltd (ASX: BGA) share price is up 2.22% this month while A2 Milk Company Ltd (ASX: A2M) shares have edged 0.13% lower.

What’s keeping these Aussie companies’ values high in March and does it put them in the buy basket?

Why ASX 200 dairy shares are holding their value

Obviously the major driver of share prices right now is the coronavirus pandemic. The reality is that investors are spooked and no one knows just how far this whole thing will go. But within 200 of the largest Aussie companies there still has to be some good buys, right?

We’ve seen the panic buying in Aussie supermarkets like Coles Group Ltd (ASX: COL). If we start to follow the supply chain, we can get an inkling into why ASX 200 dairy shares are doing well right now.

In simple terms, a surge in demand means the likes of Coles and Woolworths Group Ltd (ASX: WOW) need to scramble for supplies. While Aussie supply chains are solid, there are still significant logistics involved. Some of the items in big demand are dairy products. That points us back to the ASX 200 dairy shares like A2 Milk and Bega Cheese.

It’s a remarkable turnaround from December 2019, when many feared the impact of the devastating bushfires on company earnings. However, the COVID-19 pandemic means that dairy earnings could be climbing this year. Further downstream, it’s likely to be a welcome boost for Aussie farmers seeing strong demand for their product.

Are they in the buy zone?

While ASX 200 dairy shares like Bega and A2 Milk are doing well right now, I think we need to look longer term. While they could provide a good hedge in the next few months, the Fool philosophy is more about a long-term perspective. 

I personally like both companies, but I’m not buying right now. I’d like to keep my cash on hand and use it on tactical, long-term buys as they crop up.

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As of 17/3/2020

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of A2 Milk. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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