By Matt McCallMar 19, 2020
It was nice to have a relatively “calm” day in the markets. After eight straight days of 1,000 point moves on the Dow, we’d almost forgotten what they were like.
There’s no question the last few weeks have been some of the most difficult ever for many investors. The rapid sell-off in stocks combined with the daily volatility has investors scared and confused. Add in the obvious reason for the market action – the coronavirus and resulting shutdowns in much of the world – and both uncertainty and fear are historically high.
Today, I want to share some stories of companies holding up well in the face of the current sell-off. A little good news – and there is some good news – is warranted at this time.
There are not a lot of grocery store chains that are publicly traded, but Kroger (KR) is up 18% since the sell-off began on February 19 and is one of the best performers in the S&P 500. The stock hit a new multi-year high this week as Americans run out to hoard groceries and toilet paper. This $28.5 billion company should continue to see increased demand for the foreseeable future, at least until life is back to normal. Even with the outperformance, KR is still undervalued with a forward P/E ratio of 14 and a forward price-to-sales ratio of 0.21.
A few smaller grocery names are also holding up well, including Weis Markets (WMK) and Ingles Market (IMKTA).
Along the same lines, discount retailers are holding up better than the overall stock market. Walmart (WMT) is up 5%, though Costco (COST) is down 4.5%. The big winner is smaller competitor BJ’s Wholesale Club (BJ), which has surged 29%.
BJ’s is also the cheapest of the group with a forward P/E ratio of 15.2 and a forward price-to-sales ratio of 0.27. The $3.7 billion company, which went public in 2018, came close to a new all-time high this week before pulling back today. All three stocks will likely pull back, but there is opportunity on weakness if the current situation continues.
And no surprise here… the maker of disinfecting wipes and a plethora of other bleach and cleaning products is doing well. Clorox (CLX) is up 15% since February 19. The $23.8 billion company hit a new all-time higher earlier this week, but unlike the other stocks we’ve talked about, it is far from cheap. The stock could keep moving in the short term given the current environment, but upside is limited by a lofty forward P/E ratio of 28.7 and forward price-to-sales ratio of 3.7.
A few other companies in the niche sector are down but still holding up much better than the market, including Procter & Gamble (PG) and Kimberly-Clark (KMB). Similar to Clorox, both stocks are on the expensive side at this time.
The biotech sector is also holding up better than most during the sell-off. The iShares Nasdaq Biotech Index ETF (IBB) is down 17.5%, which does not sound good, but it is performing much better than the broader indices. For comparison, the S&P 500 is down about 29% in the same timeframe.
It makes perfect sense that biotech stocks would hold up better than the overall market. The eventual cure and vaccine for the coronavirus will likely come from a biotech company. Plus, future innovation in drug discovery will not be slowed by any potential shutdowns or a recession. In fact, I believe the FDA will speed up the drug approval process in the months and years ahead, leading to more blockbuster drugs coming on the market faster.
Two of the biggest winners in the sector right now are Gilead Sciences (GILD) and Regeneron Pharmaceuticals (REGN). These large biotech stocks could be among the first to provide a treatment for coronavirus patients. Both are testing drugs approved for other ailments to determine their efficacy against the virus. If one or both receive approval, it would send shares soaring in the short term.
Both stocks are up about 23% since the market topped out on February 19. Smaller biotech stocks holding up well include Moderna (MRNA), Inovia Pharmaceuticals (INO), and Wave Life Sciences (WVE).
Then there are one-off stocks doing well because of unique business models that actually thrive during this time of crisis. One you have heard me talk about many times is the world leader in telehealth, Teladoc (TDOC). The stock is up 19% in the sell-off and hit a new all-time high last week. Teladoc remains one of my favorite long-term stocks in the entire market, and the recent performance only strengthens my original thesis that this is where healthcare is going in the 2020s.
Another stock I would mention is software firm Citrix Systems (CTXS). The company’s digital workspace technology is being utilized by a lot of companies and schools as employees and students are stuck at home. CTXS is up 12% since February 19 and hit a new all-time high just today. The $16.7 billion company is expected to continue its rapid earnings growth and trades with a very cheap PEG (price/earnings-to-growth) ratio of 0.93 even after its breakout.
As you can see, even in this rough market environment, some stocks are holding up well… and others are even thriving.
While the specific reason for this sell-off is new, the bear market is still strikingly similar to past panics. Stocks get smacked and things look the absolute worst just before a bottom is formed… and a great buying opportunity is created. As the saying goes, it’s always darkest before the dawn.
The same will occur this time as well. Keep your head up. And if you missed my special Crisis & Opportunity Investment Summit earlier this week, please go here to watch today. I think you’ll find it helpful.
Click here to listen to Matt McCall’s MoneyLine podcast! This week, Matt talks about everything from past pullbacks to recessions to the coronavirus and its role in the stock market emergency. We headed into this new bear market fast. Fear and panic selling are at all-time highs – but fear isn’t the answer. And that’s why Matt is sharing his top five tips for profiting during a bear market. He also shares advice for millennials investors, his thoughts on the Robinhood trading platform, and possible growth opportunities for long-term investors.
You can subscribe to this podcast on iTunes, Stitcher, Spotify, or wherever you listen to podcasts.
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