The Coronavirus Gives Global Stocks a Cold

EVERYBODY STAY CALM!

Ok, ok, ok. Yes - it is the worst one-week sell-off since the financial crisis. However, for the intelligent investor this represents a perfect buying opportunity.

For a long time now, I have been saying that the stock market has been acting irrationally and as such I have been very careful with allocating risk and have ensured my portfolio is not over-exposed to rapid movements in stock prices.

Last week, the bond market and gold both indicated a contrary story to that suggested by the stock market (which was rallying to all time highs at every opportunity). And thus, last week I exited positions quite aggressively. I did not know when the market would correct downwards, just that it would.

Certainly a correction of magnificent proportions. 

Anyhow, 12% lower in the S&P500 and now valuations in certain sectors are starting to look a little juicy again. For the value investor in me, there are opportunities arising which I did not expect to see again.

Here's what I've been buying with a brief reason why:

CVS Health (NYSE:CVS) - I know, I've been excited about this stock since 2018, but the valuation is truly juicy now. Trading at just $59 a share down from recent highs of $76. I loved this stock at $70 a share, never mind at $59. Once again, CVS is the largest holding in my portfolio.

Alphabet (NASDAQ:GOOG) - I've been looking for a good price to get into Google for a long time now. Clearly, it is a stock which is here to stay and will only grow. It is a Coca-Cola of the modern age, and at this valuation (down over 12% from highs) it certainly looks attractive. Also, what are people going to be doing when they are trapped in their houses? Googling.

Macy's (NYSE:M) - Another stock I have been screaming about for months. Albeit now for different reasons as it has cost me a fortune on paper over the last week. The shares are down immensely, but the dividend remains highly juicy, and they just beat their earnings, so things are looking up for the beaten down retailer. For reference, the dividend now stands at 11.11% and is relatively sustainable.

Aviva (LON:AV) - Another stock which has taken a beating which was already in my portfolio, but the dividend yield is soaring higher as the stock falls, so naturally, I am buying more. The dividend yield now rises toward 9%, and the company valuation remains attractive.

The Walt Disney Company (NYSE:DIS) - This is one which is slightly controversial given the risk posed by the Coronavirus to the parks. However, we are now trading around the value we saw before the Disney Plus announcement, and we've also seen the massive increase in subscribers Disney has before it has even gone fully international. This is an attractive price to enter at in my opinion.

Other stocks I have my eye on: 
I am currently watching Microsoft very closely. We have to remember Coronavirus is a biological virus and not a computer virus ha ha !

The share price has been hammered and therefore the valuation looks attractive.

I'm also carefully watching the price of oil - this has been a leading indicator throughout the whole virus epidemic and therefore if the price of oil stabilises I will start to rapidly enter some positions in oil companies like RDS and BP.


 What Next? 

It appears now that all we can do is wait. Personally, I believe that the weekend will reveal the virus is much more under control than what people expected. Sure, there may be an increase in cases in Japan, South Korea and Italy, but this is now being recognised and taken much more seriously.

Similarly, I wonder whether we may start to see some evidence of incoming monetary policy stimulus from the Federal Reserve. Whilst this is clearly a supply shock and not a demand shock, if the Federal Reserve can make it cheaper to borrow money so that businesses experiencing delays in supply lines can continue to operate, this will help to mitigate any shock. This is also explained by the strengthening of the Euro in the last week.

Furthermore, in Europe I would expect some further lightening of the tone with regard to fiscal stimulus (particularly from Germany) in order to stave off recession.



On the whole, there can be no doubt that the market needed this correction of over 10% to bring it back to fair value. However, I would take any further selling as a clear buying opportunity, because for now we do not know the extent of the virus. If the weekend reveals this to be more under control, then we can expect a sharp and rapid rise in stocks; even if the economy may recover more slowly.

For the value investor, this is the perfect opportunity to snag a bargain.

Last Word:

Keep calm and carry on.



UPDATE: Strong rally to start the week. Looks like this was a good call. My new call for the next week is relatively flat trading, until we get a clearer idea of fiscal stimulus.