Before I reveal my three stocks which I will be buying or adding more to my portfolio as they become cheap from the Covid-19 crisis sell-off, let’s look at the current situation and rationally chart out a plan to seize some possible opportunities.
As of 4th March 2020, the number of people infected worldwide is 93,521 with 3,202 deaths while 51,765 patients have recovered. Majority of the infected are from Wuhan, the epi-centre of this outbreak. There are now 81 countries affected, so this virus has certainly travelled wide around the globe. While WHO has not declared it a pandemic, the fact is that the virus will not die down any time soon, and the spread will continue.
Containment seems to be the best strategy right now, slowing down the spread as much as possible. 80% of those infected have very mild symptoms and recover with minimum treatment while the older population and those with existing underlying medical conditions are most susceptible.
Covid-19 crossed an inflection point during the week of February 24, 2020. Cases outside China exceeded those within China for the first time. With its extreme measures taken, China has certainly managed to largely keep the situation under control.
From what is known about the virus so far, mortality rate can be managed to be as low as 0.1% if medical resources including protective gears for the healthcare workers, medicine, ventilators, hospital beds etc can be optimized. This requires that there is good containment and no widespread infection all of a sudden.
The situation is still very fluid and researchers are also rushing to develop a vaccine but that timeline is in years rather than months. We will see more countries reporting infection cases and the number of people infected will continue to grow.
The economic impact globally is certain. You can refer to one report by McKinsey.
We don’t know how long it will take normalcy to return, meaning people starting to travel freely, factories are back to full production, supplies chains are restored and businesses are planning for expansive investments. However, let’s assume this is not the end of the world and eventually the virus disappears like SARS or we know how to live with it.
With that backdrop, which three stocks am I eyeing?
This has to be my number 1 stock on my shopping list. The value investing gurus Warren Buffett and Charlie Munger have a cash pile of $128 billion and they would know exactly which companies to acquire as and when they are on discount. Bershire Hathaway as a company is exceedingly difficult to valuate because of its many holdings of diverse businesses. Fortunately, we know what Warren Buffett and Charlie Munger are thinking regarding Berkshire Hathaway’s own share price from its recent share buyback activities.
My number 2 stock has to be Facebook. This company has a tremendous economic moat and still has a lot of growth potential. There is no true alternative to what Facebook is providing as an advertising platform to businesses.
So as not to miss out opportunities from China as the country bounces back from this crisis, my number 3 stock is Alibaba. In addition to the growth potential on the e-commerce front, I also see tremendous upside from its cloud computing and mobile payment business segments as well as initiatives in new retail, artificial intelligence and aggressive expansion geographically.
I choose these three also because, in my personal opinion, their current stock prices are either fairly valued or slightly under-valued.
Do note that the market will be very volatile and as you are buying into the market, you may want to bear in mind the following pointers:
- Have the mindset that you are buying businesses for the long term
- Invest with money that you have, set aside urgent funds separately. You may be in for the long haul
- Buy into the market progressively. Assume the market correction to be brutal, 30%, 40% and even 50%. Cheap can become cheaper, so do some dollar cost averaging
- Now it is also crucial to pay extra attention to a company’s debt levels and if its cash-flow can tide over prolonged difficult times
Lastly, for your overall portfolio, you may want to consider having some dividend paying stocks. For Singapore, I particularly like the REITs which may give 4% to 7% distribution yield and some with good potential capital appreciation. The Singapore REITs have been quite overvalued for a while but there may be some good opportunities during this time.
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At Journey With Money, we are practitioners of Value Investing for Singapore and US stocks. We are passionate about sharing our Stock Investment knowledge and experience but the materials we present do not constitute stock recommendations and readers are urged to do their own due diligence for any investment decisions.
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