Though investors have been losing sleep over the rapid spread of coronavirus and its impact on the global markets, the fears seem to be overblown.
No doubt, the virus outbreak is a pressing concern, having so far claimed 811 lives in Mainland China alone and infecting 30,000 people globally. But learning from the past, such outbreaks have never lasted more than a few months. Viruses come, spread, peak and eventually subside. Similarly, their impact on the economy is also short-lived, and economic activity rebounds shortly after the virus dies down. By the way, both domestic manufacturing and service activities increased recently, and the labor market continues to remain on a solid footing, a tell-tale sign that the economy is doing well despite the emergence of the deadly virus.
Moreover, the Wuhan coronavirus isn’t as deadly with a mere 2% fatality rate. In comparison, SARS had a fatality rate of 10%. And largely, coronavirus is limited to China, while substantial progress has been made on a potential treatment.
Medical experts at Johns Hopkin have downplayed the threat from this particular type of coronavirus or the 2019-nCoV. Gabor Kelen, a medical doctor and director of the Johns Hopkins Office of Critical Event Preparedness and Response, recently said that “the immediate health risk from 2019-nCoV to the general public in the United States is thought to be low at this time.”
Last but not the least, in response to the virus outbreak, the Chinese government has injected stimulus and halved tariffs on U.S. commodities. Per China’s Ministry of Finance, in order to promote Sino-U.S. trade relationship, 10% tariffs on some of U.S. commodities would be cut to 5%, while those with 5% tariffs will be trimmed to 2.5% starting Feb 14.
Thus, the coronavirus outbreak is a short-term woe. Once the coronavirus fear subsides, here’re the beaten-down U.S. stocks that will gain traction on fundamental strength. This makes them compelling investment choices. Take a look –
Apple Inc. (AAPL - Free Report) designs, manufactures, and markets smartphones, personal computers, tablets, wearables, and accessories worldwide. The coronavirus outbreak in China has affected Apple in several ways. The company had to close an array of stores in China and many of the iPhone maker’s suppliers have been asked to halt production.
But let’s admit, Apple is doing just fine. Traditionally, February anyhow isn’t a big month for iPhones. And since iPhone is a big-ticket purchase, any loss in sales in February will get compensated in March and April. Moreover, new iPhone launches come at the end of a year. And by the end of 2020, the outbreak should be a thing of the past.
Nonetheless, Apple has witnessed increased sales of smartwatches, AirPods wireless earbuds and services like mobile payments and streaming-music subscriptions in recent times. Growth in such segments helped Apple offset an almost 14% decline in its iPhone business last year, which accounts for the bulk of its sales.
Services, in the meantime, has become Apple’s second most important division. After all, more than 450 million customers are buying Apple’s streaming contents, news and warranties. Apple earned a staggering $46 billion from the segment last year, which accounted for 18% of overall sales. Apple is also benefitting from strong adoption of Apple Pay and growing Apple Music subscriber base.
Apple currently has a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for its current-year earnings has moved up 5.2% over the past 60 days. The company’s expected earnings growth rate for the current quarter and year is 21.5% and 15.6%, respectively. You can see the complete list of today’s Zacks #1 Rank stocks here.
Intel Corporation (INTC - Free Report) provides computing, networking, data storage, and communication solutions worldwide. The global semiconductor company saw its shares take a beating once the news about the virus outbreak spread. But traditionally China-centered epidemics don’t impact global semiconductor demand for long. For instance, global semiconductor sales jumped in 2002-03 amid the SARS outbreak.
And how can we forget that Intel’s recent upbeat fourth-quarter 2019 earnings report and the issuance of a promising guidance for the first quarter. The company reported fourth-quarter 2019 non-GAAP earnings of $1.52 per share, which beat the Zacks Consensus Estimate by 22.6%. What’s more, for the first quarter of 2020, Intel expects non-GAAP earnings of $1.304 per share. The Zacks Consensus Estimate for the same is currently pegged at $1.20. This shows that demand in the company’s core data-centric market is improving.
Certainly, it will take more than a short-term epidemic to derail such solid companies. And once the epidemic fades, data-centric demand will actually increase, thanks to stimulus provided by Asian central banks. Hopes of abatement in U.S.-China trade tensions are also working in favor of Intel. This is because Intel more or less generates bulk of its revenues from China, and it’s more than what the semiconductor company makes in the United States.
To top it, Intel’s leading position in PC market, strength in servers, growing clout in software, IoT & ADAS domains and headway in process technology are positive indicators of growth prospects. Intel currently has a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for its current-year earnings has moved up 5.7% over the past 60 days. The company’s expected earnings growth rate for the current and next quarter is 47.2% and 18.9%, respectively.
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