Coronavirus is causing rippling anxiety across the global markets as the full implications of this potential pandemic are yet to be seen. The richly valued equity was looking for a sell catalyst, and the coronavirus anxiety was the perfect opportunity. If the coronavirus doesn’t become a worldwide pandemic, this fall is creating buying opportunities for those stocks that you thought you missed out on.
The S&P 500 has traded up to its highest forward P/E since the dotcom bubble burst. Through 2019 and the beginning of 2020 the US equity markets rallied steadily guided by the Federal Reserve’s “easy money” policies. The stock market traded straight up since the beginning of October on little news other than some optimism in the US-China trade conflict.
A correction remains necessary, and the coronavirus just happened to be the impetus. As I watch these falling equities, I see a growing opportunity for stocks that I missed out on during the rally.
Which Stocks Am I Looking To Buy As the Market Breaks?
This market is entering an anxiety-ridden state, and with high market valuations, there is room for a more considerable downside. I don’t believe we are entering a bear market, but I feel a marginal correction is due, and a buying opportunity is opening. Here are a few falling diamonds that I would consider buying as the market corrects.
Alibaba is down over 10% in the past week due to the coronavirus, and I would expect this Chinese based company to get hit the hardest. This is creating a buying opportunity for one of my favorite Chinese based companies.
The Amazon of The East has been largely overlooked in the past couple of years due to the US-China trade conflict. Now that the conflict has begun to ease, BABA has seen some recent growth. I see a more substantial upside to China’s ecommerce and cloud computing leader, especially now that it has pulled back.
When compared to Amazon (AMZN), BABA is trading at a substantial discount. The firm not only sports wider margins and a more extensive growth outlook, it’s also more profitable than Amazon.
I would call this stock a buy right now for any long-term investor, but if you are looking at a shorter horizon, I might wait for the full implications and quantitative effect of the coronavirus to be understood before considering a long position.
Alibaba’s China exposure is still a concern, and it could have a more sizable impact than on US equities.
DIS has been trading all over the board the past 52-weeks as analysts and investors attempt to price in Disney’s streaming bet. Disney+ saw enormous success in the first 24 hours of its release, with 10 million costumers rushing to sign up for the new “must have” streaming service.
Disney was forced to shut down its mega Shanghai theme park in response to the outbreak. This will have an impact on the companies topline depending on how long the park is shut down.
Despite this marginal impact from 1 of 12 parks, I am confident that Disney + still has a sizable global upside, and so does DIS. These shares traded up fast on the positive feedback from its new streaming platform but have traced down since the beginning of 2020, having lost 8% from the first day of trading this year.
Disney’s new streaming platform has pushed its valuation up as investors price in more future growth from this high potential new offering. DIS is trading at the lower end of its new forward P/E trend (since Disney+ was release November 12th) and as the stock falls its attractiveness increases. Disney’s China exposure is light, and this anxiety-driven sell-off creates a growing opportunity for this investment.
Look for an update on Disney +’s performance in the company’s earnings report next week on February 4th.
Whether this global equity break-down will continue is a coin flip, but in my view, US stocks have more room to fall off their rich valuations, and this seller’s momentum may not stop until the full implications of the coronavirus are understood and quantifiable.
Look for good comfortable entry points in the robust investments I discussed above.
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The Walt Disney Company (DIS): Free Stock Analysis Report
Alibaba Group Holding Limited (BABA): Free Stock Analysis Report
Amazon.com, Inc. (AMZN): Free Stock Analysis Report
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