Concerns over how the coronavirus outbreak will impact corporate profit margins and global economic growth continue to roil the U.S. stock market. The Dow and the S&P 500 have tanked for the fifth straight day, while blue-chip firms like Microsoft warned that it may not meet its revenue guidance for its Windows and personal computing business.
A new case of coronavirus was confirmed in Northern California, while Germany’s health minister announced the “beginning of an epidemic” for the country. This follows the rapid spread of the virus in countries beyond China, including Italy and Iran.
But this isn’t the first flu scare and surely won’t be the last. And coronavirus doesn’t seem to be exceptionally lethal. The death rate is 2.3%, compared to other deadly SARS and MERS viruses that had death rates of 9.6% and 34.4%, respectively. However, even if coronavirus is less fatal, its impact on the economy will be much worse. For instance, when SARS affected China in 2003, its economy accounted for just 4.2% of the world economy. But now China accounts for 16.3% of the world economy, per IHS Markit. And China’s economic slowdown due to the spread of the virus will certainly have a rippling effect around the world.
Amid such a gloomy scenario, U.S. companies that particularly generate a bulk of their revenues in the United States or are at least not exposed to China will likely continue to do business as usual. Hence, investing in such comparatively safe stocks seems prudent. With that in mind, let’s us look at the best choices —
US-Focused or With Least Exposure to China
Companies involved in ride-sharing services have been hit hard owing to fears of coming in contact with an infected person. But the worries seem overstated. After all, the number of cases in the Unites States are far less compared to China. In the Unites States, other than washing hands more frequently, there isn’t any panic on the ground level. This makes ride-sharing behemoth, Lyft, Inc. LYFT a solid investment choice.
The company’s revenues are improving and losses are reducing as it continues to work toward controlling costs. Lyft reported solid fourth-quarter results, with revenues soaring 51.9% to $1 billion from the same period last year on a robust rise in Active Riders. What’s more, Lyft currently has a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for its current-year earnings has jumped 32.5% over the past 60 days. The company’s expected earnings growth rate for the current quarter is a whopping 93.4%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Digital advertising company, Pinterest, Inc. PINS is obviously the second choice. It’s operation is blocked in China and thus has no exposure to the worst-affected region. At the same time, the company has a huge presence in North America, where the outbreak is pretty much contained.
The company, in itself, is doing well. It recently reported blowout fourth-quarter results that showed robust user growth and healthy profit margins. To top it, Pinterest currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has climbed 20% over the past 60 days. The company’s expected earnings growth rate for the current quarter is 78.1%.
Domino's Pizza, Inc. DPZ is also poised to gain as it generates the bulk of its overseas revenue from India, South Korea and Japan, but not much from China. The stock has had a terrific run in recent times, having more than tripled in value since early 2016.
Domino’s solid digital ordering system, robust international expansion and other sales initiatives should continue to drive growth. Currently, the company has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has moved up 2.9% over the past 60 days. The company’s expected earnings growth rate for the current year is a solid 13.6%.
A Pandemic-Proof Stock
Investors, by the way, may also consider companies that have established business models and are fundamentally strong enough to provide hedge against any downfall. Prominent among them is Netflix, Inc. NFLX. Firstly, it primarily provides streaming services, so any lockdown in response to the coronavirus outbreak won’t have any impact on its subscriber growth. In fact, Netflix added 8.8 million subscribers internationally last quarter, surpassing analysts’ expectations by more than a million.
Netflix’s subscriber growth was mostly driven by content strength, focus on originals across various genres and languages, rapid international expansion and partnerships with telcos. Meanwhile, service Netflix entered this year’s Oscars with 24 nominations, and walked away with two wins. Such wins will certainly help Netflix lure and retain subscribers as the company continues to face challenges from rival services like Disney+ and Apple TV+.
Netflix currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has moved 10.6% north over the past 60 days. The company’s expected earnings growth rate for the current quarter and year is a promising 119.7% and 46.7%, respectively.
Be a Contrarian Investor!
Unlike the general trend, investors may even consider investing in superb Chinese companies. Thanks to the coronavirus jitters, most of them are actually close to bottoming out. And that makes them compelling investment choices. Notable among them is Tencent Holdings Limited TCEHY.
The provider of Internet value-added services in mainland China saw its shares drop 1.2% in the past five trading sessions, but its expected earnings growth rate for current quarter and year is an encouraging 30% and 20.5%, respectively.
Tencent Holdings currently has a Zacks Rank #2. And the Zacks Consensus Estimate for its current-quarter earnings has moved 2.6% up over the past 30 days.
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