The markets have no idea what to do in this time of economic turbulence. Global supply chains have been wrecked, and global demand is plummeting as the coronavirus (newly named pandemic) spreads around the world at a prolific rate. It seems that there is no safe place to put your money with the 10-year treasury yields trading at its lowest level in history and a panic laced equity market.
I am an equity advocate during this period of pathogen panic. There is a lot of opportunity to be had in this arena if you are able the navigate this new market environment effectively.
Why We Need Fiscal Stimulus
The queue that I am waiting for to start dumping money into the markets is a fiscal stimulus package. I believe that a stimulus package put together by the Trump administration would boost market confidence and be the beginning of the V-shaped recovery we’ve all been waiting for.
Trump has been hounding the Fed to keep cutting interest rates (monetary stimulus), even after the emergency 50 basis point cut to their benchmark rate, which appeared to have little effect. The markets are now pricing in another rate cut of 50 points for next week’s FOMC meeting, but these rate cuts aren’t going to solve the problems that the coronavirus has put in front of us.
The economy is very fearful right now, and monetary stimulus is not going to alleviate our immediate anxiety. A fiscal stimulus package could be enough to drive confidence back into the marketplace. The Trump administration and congress have discussed a payroll tax cut and potential stimulus for industries that have been hurt the most by this virus. Trump will not let the stock market tank as he has been using its performance as his implicit report card since he’s been in office.
I would expect that once the indices drop down into bear territory (down 20%+ from recent highs) – which we are very close to – we should expect a fiscal stimulus package to follow soon after.
The markets are panicking because Trump and his administration are not. Once these roles are reversed, a sizable rally should follow.
What You Should Be Doing
Almost the entire stock market is trading at a sizable discount. The S&P 500 had been trading at its highest forward P/E since the early 2000s. The once rich P/E valuation has now fallen to a reasonable level over the past few weeks. The S&P 500’s forward P/E is currently trading at around 16.5x, which is on the lower side of its 14x – 20x 5-year range.
If you are a long-term investor with an investment horizon of a year or more, I would not hesitate to start buying up your favorite discounted equities. Make sure you stick with companies that have healthy balance sheets and a robust long-term outlook. Some stocks I would consider include Microsoft (MSFT), Alibaba (BABA), Adobe (ADBE), Disney (DIS), and Lockheed Martin (LMT).
I really like LMT right now as the stock has fallen to the lowest end of its 5-year forward P/E multiple. This firm has lost over 18% of its value in the last month, yet its future couldn’t be brighter. Lockheed pulls roughly 70% of its revenues from US government contracts. This next election is going to be critical for LMT’s long and short-term potential.
As of current primary results, the two most likely candidates to become the next US President are Trump and Biden. Both candidates believe in a strong military and will continue to fuel Lockheed’s topline.
Disney also presents a unique buying opportunity as the shares have fallen over 25% in the past month due to concerns about theme park closures. This enterprise’s parks are a significant profit driver and the coronavirus will undoubtedly hamper this profitability as tourism plummets. Disney’s earnings will take a blow for the next few quarters, but this is only a short-term issue.
As an owner of DIS I’m not worried about the parks taking a hit for a couple of quarters as my sights are set on the long-term potential of Disney+, its direct-to-consumer streaming platform that is disrupting the space. The company’s direct-to-consumer offering, which now includes Hulu, ESPN+, and Disney+, are becoming must-have services for consumers’ portfolio of streaming platforms.
DIS is now trading below where it was when Disney+ was first announced. These shares are tracking down to its $100 dollar support level, which has been held by this stock for the past 3 years. I am already beginning to load back up on this stock. If the US government offered stimulus for hurting tourist attractions like Disney’s parks, I would expect these shares to fly.
The markets continue to fall as they wait for some sort of fiscal stimulus to prop it back up. Coronavirus cases in the US just surpassed 1,000, and the World Health Organization is now calling this a pandemic.
The markets have been pricing in the worst-case scenario and long-term buying opportunities continue to ripen as valuations fall. I am slowly buying into this volatile market with low volumes and price-averaging down as the market continues to falter.
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Microsoft Corporation (MSFT): Free Stock Analysis Report
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