The coronavirus continues to spread across the world. COVID-19 cases continue to rise in Victoria and NSW. There are some ASX shares that could be a good defence against a coronavirus-induced market selloff.
I'm a bit cautious about some of the shares that saw strong revenue growth in the first few months of COVID-19, particularly ones like retail. People won't need to buy stuff for another home office. The DIY projects have probably already been done. The economic stimulus payments are scheduled to reduce in the coming months.
Here are three of my ideas with the above in mind:
APA Group (ASX: APA)
APA is the only ASX infrastructure share that I believe can continue to deliver reliable cashflow and distributions for investors during this period.
It owns a large gas pipeline network across the country and it delivers around half of the country's natural gas supply. It also has investments in renewable energy generation as well as gas energy assets.
Despite COVID-19, the gas infrastructure business only saw a small hit to its earnings in FY20. That's why it was able to achieve its distribution guidance of 50 cents per unit for FY20.
APA's growing distribution is funded from the long-term growth of its cashflow. The more projects that come online for APA, the more cashflow that APA can generate and pass through to investors. Even through this coronavirus period.
The ASX share has grown its distribution every year for the past decade and a half. Based on the current APA share price, it offers a current yield of 4.4%. I think its operations will be largely unaffected even if there were to be a large second wave of COVID-19 cases.
Bubs Australia Ltd (ASX: BUB)
Bubs could be one of the better ASX shares to protect against another coronavirus wave. Every household needs access to nutrition and I'm sure families would prefer to go for quality Australian items if their budget allows.
Bubs produces and sells infant formula as well as other similar items like products for adults plus baby food. The company also recently announced the launch of 'Vita Bubs' which is a vitamin and mineral supplement range.
I expect that there will continue to be resilient demand for Bubs' infant formula during FY21 and beyond. In FY20 the company achieved gross revenue growth of 32% to $62 million with infant formula revenue climbing 69% over the year. In FY20, China direct sales increased by 37%. The company continues to see gross margin improvement each year. International growth and rising margins is a strong combination.
In FY21, excluding any residual COVID-19 adverse impacts, Bubs said it's expecting to achieve profitability at the 'normalised earnings before interest, tax, depreciation and amortisation (EBITDA)' level. It also expects continued strong (revenue) growth in FY21.
The current Bubs share price of around $0.94 looks very attractive to me for the long-term.
Nextdc Ltd (ASX: NXT)
Data centre business Nextdc is one of the limited number of ASX shares that's seeing faster growth due to the coronavirus.
More businesses are moving to online IT infrastructure with the need for flexible working, and Nextdc is benefiting. It's responsible for the design, construction and operation of Australia's only network of tier IV facilities.
It's winning plaudits for sustainability by using renewable energy sources and good operational efficiency. Its corporate operations have been certified as carbon neutral.
The company regularly reports of new contract wins. It recently announced another 4MW of customer commitments in NSW.
The shift to cloud infrastructure isn't something that's going to go back after COVID-19 is over. I think the adoption curve has been brought forward and that is good news for Nextdc. Though it came about from very difficult circumstances.
Nextdc is currently investing heavily in building data centres, so it's not expecting to make big profits in the short-term. But it's a long-term investment idea at the current Nextdc share price.
Foolish takeaway
I think all three of these ASX shares can make good returns over the long-term whether there's more waves of the coronavirus or not. At the current prices I'm most attracted to Bubs. I think it has great international growth potential over the longer-term.
