Not all share prices have slumped, some have risen sharply in recent days. I think you can break down the buying opportunity into three stages.
Zoom shares soar, prepare for the three stage buying opportunity
Don’t get me wrong, I am worried about Coronavirus. I’ve just got over a cold, and my first thought with the first sneeze was ‘I’ve got it.’ I don’t want to sound like a Bond villain pointing at ways to make money because of other’s misfortune, but as Freddie Mercury said: “But life still goes on.” Apologies if it sounds insensitive, but we have to plan.
Coronavirus will create a buying opportunity and the reason is simple. Share prices are supposed to reflect the long term performance of a company. Unless you think COVID-19 will cause long term hard to a stock, then in theory all the losses of recent weeks should be reversed.
But some companies stand out for the opportunity they represent. I'll divide these companies into three stages.
Stage one: companies that benefit directly from Coronavirus
Have you seen shares in Zoom? The video conferencing company has seen its share price almost double this year. Coronavirus is going to encourage more of us to work from home. Technology will encourage the rise of attending move events remotely — so that means webinars, for example. Obviously any company directly involved in finding a cure or vaccine for the virus will benefit — Inovio Pharmaceuticals shares are up three-fold this year for example.
For safer investments, suppliers of essentials should not see the same scale of losses as other companies. So utilities might be a dividend paying safer bet, but I wouldn’t describe shares in utilities as opportunities, merely reduced downside.
Second stage — first to recover
Shares in companies reliant in some way upon China were among the first casualties. In the UK that is companies like Burberry — 40% of sales into China — or even retailers such as Next or Marks and Spencer which rely on Chinese manufacturing.
But just as China was first to experience Coronavirus, it is recovering first. In part this is just the natural cycle, but there is also another factor at play. Because of the authoritarian nature of government in China it has been able to impose regulations and restrictions that might not be possible in other countries. As a consequence the spread of Coronavirus has slowed markedly in recent days. It is possible that across the developed world, the country most in danger, with its health system made up of competitive hospitals, and libertarian mindset, is the US.
I would say that shares that have performed especially badly because of the Chinese link may be among the first to recover.
Stage three — after the crisis
I would expect share prices to recover quickly after the crisis, but surviving companies operating in sectors that have seen a lot of bankruptcies may benefit especially, as they will face less competition.
For some time Ryanair has been predicting a shake-up in the airline sector. With the collapse of Flybe we can see this is already happening.
Right now, might be too soon to buy, though.
These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees