Brave investors should cast a close eye on some of the stocks now being pounded by wave after wave of virus-driven selling.
The share prices of airlines, holiday cruise operators, luxury goods retailers and miners have suffered stinging losses in recent weeks. Nervous investors have dumped these sectors with a vengeance as concern grows over the uncertain effects of the coronavirus on the global economy.
The dash for safety is understandable. At these levels, though, several of today’s most disliked companies could be major bargains if the virus is contained over the next month or so, and the global economy suffers only a weak quarter or two.
Consider Carnival Corp., the cruise line operator, has lost 25 per cent of its stock market value since Jan. 1. It is now yielding more than 5 per cent, while selling for less than nine times earnings.
In a market where most companies go for double that price-to-earnings ratio, Carnival looks extremely cheap. And it’s the not the only apparent deal on display.
Carnival’s competitor, Norwegian Cruise Line Holdings Ltd., is down 27 per cent this year, and also changes hands for under 10 times earnings.
Closer to home there is Air Canada, down 17 per cent since the start of the year. It trades for just over eight times earnings.
Investors have also thrashed other airlines, notably American Airlines Group Inc. (down 11 per cent, with a price-to-earnings ratio just over five) and United Airlines Holdings Inc. (down 14 per cent, p/e ratio of 6.3).
Luxury goods retailers such as Burberry PLC (down 20 per cent) and Kering SA (down 12 per cent) have felt the pain, too, as investors worry about the impact of the coronavirus on well-heeled Asian consumers.
Meanwhile, the possibility that China’s commodity-hungry economy will stumble over the next few months is smacking big miners such as Freeport McMoran Inc. (down 14.7 per cent) and Anglo American PLC (down 13.3 per cent).
All these stocks hold considerable appeal for patient investors willing to buy and hold for one to three years. Barring a true global pandemic, these shares should bounce back – maybe not next month, but over the next few quarters.
To be sure, there is a lot of short-term uncertainty involved. No one can say how the virus outbreak will proceed from here.
Stock markets around the globe tumbled on Monday after Italy imposed a quarantine on at least 10 towns, South Korea reported more than 200 new cases of the virus and Iran also announced a sharp rise in the number of confirmed cases within its own borders.
The spreading impact “challenges the assumptions that the outbreak will blow over with only limited damage to the global economy,” Jonas Goltermann, a senior economist at Capital Economics, wrote in a note Monday.
He noted that the yield on the 10-year U.S. Treasury has hit its lowest level since the aftermath of the Brexit referendum in 2016. Investors’ willingness to snap up government bonds even at these paltry yields speaks to their deep concern over what lies ahead for the global economy.
Mark Haefele, global chief investment officer at UBS, wrote in a note Monday that investors should prefer stocks in the emerging markets to those in Europe. While China and other countries have already taken strong measures to control the virus outbreak, European authorities are just beginning to confront the challenge.
Investors should stay away from airline and hotel stocks for now, Mr. Haefele added. Instead, they should focus on “stay at home” stocks in areas such as e-commerce and food delivery. These stocks could benefit if authorities impose strict quarantine measures on households.
That seems to be sound advice for cautious investors who want to navigate the current crisis with a minimum of risk. More adventurous types, though, may want to examine some of the market’s emerging bargains.