The Top 5 Stocks that Will Weather the Coronavirus Storm

The spread of the Covid-19 coronavirus has brought China to a standstill and has already harmed the global economy. Global stock markets fell in the last week of February as the coronavirus virus outbreak reached Europe and continued to affect factory output and international trade.

Nigel Green, Founder and CEO of deVere Group, has warned that coronavirus, paired with the heightening geopolitical and trade tensions, could drive the world to the brink of a global recession this year. He said: “Investors have largely been caught off-guard by the serious and far-reaching economic consequence of the coronavirus. This, despite major multinational organisations already lowering their profit guidances, and many more likely to do so in coming weeks. Clearly, this will hit global supply chains, economies across the world and ultimately government coffers too.

“However, it does seem that the world is waking up to the reality of the situation as the containment of coronavirus hasn’t yet materialised and confirmed cases soar in different countries. Until such time as governments pump liquidity into the markets and coronavirus cases peak, markets will be jittery triggering sell-offs”, Mr Green notes.

Investors around the world must take action if they want to safeguard their wealth in the current volatile environment and they must take precaution about the stocks they want to put their money in as the coronavirus outbreak is disrupting the supply chains of many companies.

Here is Finance Monthly’s list of the top 5 stocks that are likely to weather the storm, which will hopefully help you with handling your portfolio in light of the coronavirus news.

McDonald’s

You can find McDonald’s signature golden arches in over 100 countries across five continents. It is one of the biggest and most recognisable fast-food chains in the world. Thanks to its unique franchising structure and low prices, McDonald’s is one of these companies that will thrive in any economic condition.

With over four decades of consecutive annual dividend increases, McDonald’s is a Dividend Aristocrat[1] – it has issued dividends every year since 1976. In the last few years, it has repurchased the shares at a meaningful rate which has boosted the earnings per share and has supported the stock price.

Although the fast-food chain had to temporarily shut over 300 restaurants in China in January (which is only about 1% of its China stores), due to fears about the coronavirus outbreak,  China accounts for only 2% of McDonald’s earnings. McDonald’s stock has doubled since 2015 and has shown no signs of slowing down, even with the coronavirus out there.

Facebook

Facebook is one of the best and most safe stocks to buy on coronavirus fears. Although shares have taken a hit, investors should remain focused on the long term, valuing stocks based on fundamentals.

Facebook is one of the few companies that have no exposure in China, where the outbreak is the worst, as the social media platform is blocked there. On top of this, there are no signs that minimal outbreak in other countries has resulted in weaker digital ad spending, however, investors should keep an eye out for any commentary from Facebook’s management on whether or not the virus is having a material impact on the social network.

When taking the current low-interest-rate environment, it is also worth noting that Facebook is a growth stock, and growth stocks tend to perform very well in low-interest-rate environments.

The stock was also cheap before the coronavirus selloff, so all in all, FB stock could provide investors with a high-quality, big-growth company with minimal coronavirus exposure.

According to Jeremy Bowman:[2] “Facebook is also highly profitable and sitting on $54 billion in cash and equivalents, giving the company plenty of resilience against an extended disruption. The stock is trading at a P/E ratio of 21 based on adjusted earnings and backing out its cash sum. Considering its growth rate, the stock already looks like a bargain. If shares keep falling, it will be a downright steal.”

Even people who haven’t been affected by the coronavirus are becoming more and more health-conscious, trying to take precautionary measures through buying products like hand-wash, wipes, sanitisers, disinfectants, etc.

Johnson & Johnson

Currently in its tenth year of economic expansion, Johnson & Johnson’s stock has a reputation as a safe haven. Despite a slight dip in the stock however, it seems like its future will be bright.

Professor Kass from the University of Maryland[3] is bullish on healthcare stocks due to the amount of money that people are expected to spend on healthcare in the upcoming months, thanks to the coronavirus outbreak.

Kass commented: “… several stocks that are currently under the radar for this possible epidemic should do very well as healthcare spending in the years ahead is likely to increase substantially”.

The rationale behind this is super straightforward – Johnson & Johnson sells a wide range of everyday healthcare products to millions of people across the globe. Even people who haven’t been affected by the coronavirus are becoming more and more health-conscious, trying to take precautionary measures through buying products like hand-wash, wipes, sanitisers, disinfectants, etc. At the time of writing this, pharmacies and drug stores in the UK have run out of hand sanitisers due to popular demand. Johnson & Johnson is therefore expected to “continue experiencing rapid growth in revenues and earnings in the foreseeable future,” says Professor Kass.

Thus if anything, the virus’ outbreak could create a long-term positive effect on the Johnson & Johnson stock.

Apple

Thanks to the coronavirus outbreak, global technology giant Apple has been hit hard from multiple angles, with having to temporarily close all corporate offices, stores and contact centres in Mainland China, and suppliers being ordered to reduce or halt production. This was all followed by a 5% drop in Apple’s stock on 31st January, however, Apple will be perfectly fine and remains a stock worth investing in. Yahoo Finance believes that[4] the App Store will get a big boost during the outbreak due to the hundreds of millions of Chinese consumers being stuck at home right now, who will be looking for ways to entertain themselves. Additionally, February doesn’t tend to be a big month for iPhone sales as it is. The company relies heavily on its new iPhone launch in September and by then, coronavirus will be in the past (hopefully).

Apple’s stock remains loved by most investors and will undoubtedly weather the coronavirus storm. Once that’s over, with the release of its 5G iPhone, the tech giant is expected to see huge growth in the last few months of the year.

More and more people choose to not leave their houses amid coronavirus fears across the globe, which means that technology companies that serve consumers at home, such as Netflix, could come out as a winner from the coronavirus outbreak.

Netflix

Despite the tumble in the broader market averages, Netflix stock, along with other home entertainment stocks have been less affected. Netflix stock has made somewhat of a comeback after a solid run in 2018 – it has seen an increase in stock value of some 40% since September. On the stock market [5] on Thursday 27th February, the video streaming provider fell 2% to 371.71 after spending most of the session in positive territory.

Raymond James analyst Justin Patterson commented[6]: “We believe Netflix is in a unique position to benefit from 1) a solid content lineup; 2) normalisation of competitive landscape; 3) increased consumer time spent indoors”. It makes perfect senses – more and more people choose to not leave their houses amid coronavirus fears across the globe, which means that technology companies that serve consumers at home, such as Netflix, could come out as a winner from the coronavirus outbreak.

Netflix stock ranks number 15 on the IBD 50 list[7] of top-performing growth stocks.

 

[1] https://www.fool.com/investing/2019/11/19/why-its-time-to-buy-mcdonalds-stock.aspx

[2] https://www.fool.com/investing/2020/02/25/3-stocks-im-buying-if-the-coronavirus-selloff-gets.aspx

[3] https://finance.yahoo.com/news/7-u-stocks-buy-coronavirus-195612724.html

[4] https://finance.yahoo.com/news/7-u-stocks-buy-coronavirus-195612724.html

[5] https://www.investors.com/market-trend/stock-market-today/stock-market-today-market-trends-best-stocks-buy-watch/

[6] https://www.investors.com/news/technology/click/netflix-stock-home-entertainment-stocks-safe-coronavirus/

[7] https://research.investors.com/stock-lists/ibd-50/

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