Is the Coronavirus Creating Havoc or Opportunity on the Stock Market?

Stock Market Collapse Could Turn to Profits Fast

The best investors are those who are able to see opportunity in any situation. Right now, the opportunity is a total market collapse brought on by the novel coronavirus (COVID-19). The stock market, I’m sure you’ve noticed, has been infected by panic, causing share prices to fall pretty much across the board—but that may not be a bad thing in the long run.

Allow me to explain.

When stocks fall, they often fall hard. This is the herd mentality that plagues the markets, unfortunately, but it’s a pretty well documented occurrence. That is to say, when there’s a whiff of trouble in the air, people often begin stampeding out rather than trying to assess the situation with a sober mind.

This can cause, as you’d expect, massive market drops in short periods. It’s what we’ve seen here with the coronavirus wreaking havoc on stocks.

But here’s the opportunity: the companies whose shares have fallen are, by and large, likely going to survive.

At this point, the worst projections for COVID-19 is that the virus is about 10–15 times deadlier than the flu. Sounds horrifying, right? But you have to put that into context. The flu is usually deadly in about 0.1% of cases, according to most studies.

Of course, certain flu strains are deadlier than others, but that is the general average that I’ve found in my research. That means the coronavirus could, worst-case scenario, end up killing 1%–1.5% of its victims. While that’s still a horrible number (and of course, all the more horrible for family members and the victims themselves), an apocalypse this does not make.

So while many people have been going all “Mad Max” about toilet paper, at the end of the day, these are not the end times.

What this means is that we will see a recovery among stocks (eventually). The question that is most pertinent, is just when that “eventually” will be.

Some put the date as close as a few months from now, while others believe we could be staring down COVID-19 for more than half a year.

In either case, going long on reliable stocks could be a great way to see profit down the line.

Why the Coronavirus Is Crushing Stocks

In order to understand how best to take advantage of the current economic climate, we have to examine what’s happening on the market.

Yes, much of the stock market collapse has been accelerated by panic and worrying, but there are some genuine concerns about how COVID-19 will impact companies.

First there’s the obvious stocks that are going to take a hit: those of cruise lines, airlines, and other travel-related companies.

I just had to cancel a trip because my friend was concerned about being stuck on a plane for several hours, breathing in recycled air.

Fair enough. I wasn’t overly concerned, but I deferred to my friend and that meant our vacation was cancelled.

My story, I can promise you, is not unique: thousands will be cancelling flights and travel plans in the near future. My parents recently got a credit for their flight to Florida and they also cancelled a cruise.

Many companies are going to get shellacked, seeing huge drops in revenue—and therefore drops in stock value.

The next economic victims on the list are, unfortunately, service workers. Those working on flights and cruises, sure, but also those who work at restaurants and social venues are going to see their incomes cut.

Another anecdote: a friend of mine in the restaurant industry just had his shifts dramatically reduced.

What does this mean for the stock market? First, we’re going to see bigger draws on public programs like employment insurance and other government services, making the stock market more skittish as countries strain to keep up.

In the real estate sector, rents and mortgage payments may come in late. Some politicians are asking for a stay on rent and mortgage payments in the coming months in order to accommodate the hundreds of thousands of people who will either be out of work or underemployed due to the coronavirus outbreak.

Other companies that may be affected include consumer-facing ones. While Amazon.com, Inc (NASDAQ:AMZN) will probably see a boost in sales due to online ordering of essential goods like toilet paper and hand sanitizer, the company will also likely see less spending on luxury goods.

Therefore, the overall impact for AMZN stock could be positive or negative, depending on whether the two forces cancel each other out. We’ll have to wait and see.

Other tech companies, like Apple Inc. (NASDAQ:AAPL), may face trouble if they release a new product while the virus is still active. After all, with so many people concerned about the virus outbreak, I doubt we’ll be seeing huge lines for a new handheld device.

And then there are the companies that will almost certainly benefit from the virus.

Netflix Inc (NASDAQ:NFLX) is one I have been keeping an eye on. Millions of people staying home every day and looking for entertainment could be great news for NFLX stock—especially if the quarantines get worse.

Peloton Interactive Inc (NASDAQ:PTON) may also see a boost in share price,  as the company provides a home-based alternative to going to the gym.

And then there’s the supply chain issue, which is likely to have the biggest impact on the stock market.

A recent report found that around 51,000 companies have one or more direct suppliers in Wuhan, the epicenter of the virus. At least five million companies globally have one or more “tier-two” suppliers in the region, meaning that their suppliers get their supplies there. (Source: “The Fed’s Baffling Response to the Coronavirus Explained,” Truthdig, March 9, 2020.)

The study by corporate data analytics firm Dun & Bradstreet found that 938 of the Fortune 1,000 companies have tier-one or tier-two suppliers in Wuhan.

This means major companies could see their production costs go up or be unable to meet demand (or both). In which case, we could anticipate share prices going down speedily.

How to Profit From the Coronavirus Stock Market Fall

So I’ve outlined some industries that are likely to see falls in share price and other industries that are most likely to profit, but there’s an overall strategy that could help investors through the coronavirus crisis, and that is simply to not panic.

Much like how people ought not to squabble over the last potato at a grocery store, they also shouldn’t abandon all stocks and start storing cash under their mattresses.

First of all, in an apocalypse, everyone knows that bottle caps or teeth will be the new currency (I kid), and second of all, the stock market will bounce back.

In fact, right now may be one of the better times to buy stocks, due to the high likelihood of a recovery in a few months.

After all is said and done and a new day shines, investors will come swarming back into the stock market, cash in hand, juicing shares. Investors who bought at the bottom, as always, will be the ones most handsomely rewarded.

Now the question is: are we at the bottom yet? I’d guess not. We’re still a good few weeks away from the eye of this storm. But once we get there, owning shares of reliable companies that will almost certainly survive the current collapse will likely prove to be extremely profitable.

Analyst Take

No one can predict the future, and if you’re going by the present, things are indeed bleak.

But what we can do is look to the past for clues. And what the past tells us is that market collapses don’t last forever and, more often than not, investors who get in at the right time end up on the other side a whole lot richer than before.

Riding out a wave of panic is a key to experiencing huge growth in an investment portfolio. Of course, this is easier said than done. Investors have to hold fast in the face of a daunting market drop. But, if they’re able to keep their nerves, huge profits could await them.

That’s because the stocks that are getting walloped right now are more than likely going to bounce back with a vengeance. And that means investing on the dip not only could be a smart way to make money; I’d argue it’s as safe as any other way in the current market climate.

“Safe” is not a word you’re going to hear that often right now, especially as it pertains to the stock market, but history shows us that going long on recovery is a relatively safe bet. Every crash has been followed by stocks shooting back up within years, sometimes even within months.

For patient investors who want to see profits, waiting out the stock market fall and buying low could be a smart strategy.