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How to go stock picking in a coronavirus-infected market

By Toby |

Arguably the most iconic statement made by Warren Buffett to date is – “We simply attempt to be fearful when others are greedy, and to be greedy only when others are fearful.”  And there has never been a better time to heed to the Oracle of Omaha’s wise words.

While the market crash driven by the Covid-19 has eroded millions of dollars of investors’ money, it need not ideally erase investor confidence. For one, a market correction has long been predicted, especially since we were on a decade-long bull run. Even as market experts (ehm) expected it to be caused by global marco-economic factors such as the trade war or Brexit, what really pulled the plug was a microscopic virus that emerged in a populated city on the banks of river Yangtze.

The Dow Jones Industrial Average is currently 28% below the peak it hit in mid-February. And yet, there is very little reason to panic – at least as an investor. If past experience is any indicator, bear markets are relatively shorter in duration and are followed by stock rallies. These dips are also the “Black Friday sales” of promising stocks.      

empty supermarket due to covid-19
Empty shelves at a supermarket in Sydney. Photo by Prasanth U

Consistency at a discount

While it’s impossible to time the market, adding certain stable stocks to the portfolio at this dip could prove effective in the long-term. Take for example Tyson Foods, Inc. (NYSE: TSN), a stock that has been pretty consistent, though not high-growth, over the past couple of years. The stock has seen a 32% decline due to the Covid outbreak and is currently trading near a multi-year low. Even to a risk-averse investor, TSN’s current trading price should be a sensible bargain.

Tyson Foods had also recently hired a firm to accelerate its digital transformation and cut down costs; rising costs have been a major cause of concern to TSN investors of late.  Separately, if the quarantine measures associated with Covid-19 manage to drive a shift in consumer preference away from dining out,  it could add to TSN’s attractiveness.

On the other hand, be prepared to see some short-term impacts on the firm’s operations caused by travel restrictions and quarantines. In a recent 8K filing, the company said –

“Our operations, or those of independent contract poultry producers and producers who provide the live animals to our production operations, may become limited in their ability to procure, deliver, or produce our food products because of transport restrictions related to quarantines or travel bans.”

  • Tyson Foods Q1 2020 earnings

Meanwhile, there is an alternative to TSN in the pharmaceutical space that offers similar or more growth opportunities – Bristol Myers Squibb (NYSE: BMY). Thanks to its acquisition of Celgene last year, the company currently has a top-selling oncology therapy (Revlimid)  that is estimated to have annual sales above $10 million. The stock had soared 56% in the latter half of last year, before being weighed down by Corona fears.

Separately, the impact on its operations from the pandemic has been minimal, a company statement shows. In the report, the company says:

“All of our internal manufacturing facilities are operating as usual, along with our key contract manufacturers. We continue to hold an adequate amount of safety stock and are at an appropriate level based on anticipated needs.”

High growth at a cost

Investors with a higher risk appetite may closely watch biopharma firms that have announced research into Covid-19 treatment, such as Gilead Sciences (NASDAQ: GILD), Moderna Inc (NASDAQ: MRNA) and Novavax Inc (NASDAQ: NVAX).

Gilead had earlier obtained an orphan drug status for its experimental drug remdesivir, which would have hindered competition, in turn financially benefiting the firm. However, the company was later blasted by health activists, pointing out that Covid-19 is not a rare disease.  Gilead has said that it would ask regulators to revoke the status.  

Clinical trials are highly complicated and very difficult to predict. It will also likely take months before an FDA-approved candidate hits the shelves. Also, since Covid-19 has become a global phenomenon, many companies abroad are also rampantly working on a cure. The variables are abundant if you are betting here, but so is the upside potential.

Prudent investors have already started analyzing and targeting the most ideal candidates for their portfolio. The bear market, after all, is not going to last forever.

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