Where to invest in the COVID-19 bear market? Here are 10 picks by experts.

As the effect of COVID-19 prolongs over months, its impact on the global economy is breaking all kinds of records. On Monday April 20, 2020, we witnessed what was formerly considered unthinkable: oil prices plunging below $0 a barrel (DeCambre 2020). The quarantine resulted in fewer planes in the air and fewer factories in operation as people were quarantined in their residential areas. The change sabotaged the demand for oil, and the overwhelming surplus in supply resulted in the spectacular drop of oil prices. Some experts say that the sub-zero price is only a temporary phenomenon (Duggan 2020). Nevertheless, it happened for the first time in history and it rattled many investors.

When investors face severe volatility in the market, one may wonder these questions: 

“What are blue chip stocks/assets in the current market with unprecedented volatility?” 

“Is the idea of ‘bluechip’ asset still valid?”

What is a blue chip asset?

According to Investopedia (Chen 2020), a blue chip is a company whose reputation is nationally recognized. Blue-chip companies usually sell high quality products and services with consistent market demand. Therefore, they are often well-established and known to weather downturns during harsh global market conditions. 

🍩Fun Fact: The term “blue chip” is derived from the game of poker where blue-color chips have the highest value. 

Some experts suggest that the term “blue chip” should be redefined as even strong blue chip companies under normal circumstances, Apple to name just one, has gone through fire during the COVID-19 pandemic (Yahoo 2020). Therefore, we can categorize blue chips into two broad categories: traditional and redefined.

Two types of blue chip assets:

  1. Traditional: Assets that continue to perform strongly under the current circumstances.
  2. Redefined: Assets whose prices have dropped but have strong potential to bounce right back once the market recovers.

Let’s find out more about the two categories and assets that belong to each.

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1. Traditional : Assets that continue to perform strongly

These assets show relatively strong performance during COVID-19

There are some factors contributing to this. According to Investor’s Business Daily (Larkin 2020), you should look at the following factors:

  1. Growth: Stocks demonstrating a minimum of 25 % earnings growth in the current quarter and in the annual records.
  2. Game changer: Companies that have new, game-changing products and services.
  3. New darkhorse on the block: Companies that are generating tremendous revenue growth, but remain unprofitbile at the moment. They often are the ones that just had their IPOs.

With that in mind, let me list up some of the blue chip stocks recommended by experts from Investor’s Business Daily (Larkin 2020). They mostly are tech-savvy companies. 

Contender: Microsoft (MSFT), Apple (AAPL)*, AMD (AMD), Abbott Laboratories (ABT), Repligen (RGEN)

Microsoft:
Microsoft’s made a successful turn into cloud computing technology and the timing aligned well with the increasing need for cloud-based software and services demand from coronavirus pandemic. As more people are working remotely and homeschooling their children’s, the demand for Microsoft’s cloud-based services are steadily growing.

Analysts see Microsoft earnings rising by 18% in fiscal 2020, and 11% in 2021.

Apple*:
Experts are split regarding what one should do with Apple. According to some stock analysts, the current position is a good buy point as the stock is holding a 50-day moving average.

However, it is true that the company did suffer from production and shipment disruptions from the coronavirus outbreak, and the Wireless carriers in the U.S. seem to be facing iPhone shortages as Apple deals with production and shipment disruptions from the coronavirus outbreak.

Goldman Sachs (Goldman Sachs 2020) listed three companies that they feel may experience doom and gloom, and Apple(AAPL) is one of them. Their reasoning is  based on the following possibility: Apple’s new phone may not necessarily support the faster type of 5G, millimeter-wave spectrum, as Apple thinks that the added new function may not be warranted when there’s less demand for phones with higher specification. 

AMD:
AMD is a company with a game-changer technology. The firm has won praise for making chips whose width is at 7-nanometer scale, while rival Intel (INTC) has struggled to make chips at 10-nanometer scale. That’s not all. AMD is now developing 5-nanometer chips. For your information, circuit widths on chips are measured in nanometers, which are one-billionth of a meter.

Abbot Laboratories:
Abbott is a biomedical company and is a key player amid the pandemic. The company recently launched three coronavirus tests. Of the three, two are to diagnose the disease, and the last one is to test the history of coronavirus infection by detecting relevant antibodies.

Due to the uncertainty surrounding the Covid-19 outbreak, Abbott pulled its full-year outlook. Analyst recommends focusing on the yearly outlook, rather than the current quarter.

Repligen:
Repligen sells equipment necessary for running biomedical experiments, such as protein and filtration products, and tools for chromatography, a process of separating a mixture. Naturally, they sell products consumed in large quantities when creating medicine. “As a world leader in purification, filtration and process monitoring of biotechnology production, Repligen represents a prime recession-resistant tool stock,” Knight said in a report to clients.

2. Redefined: Assets at bargain now, and will likely to bounce right back once the market stabilizes.

These assets have great potential to bounce back once market improves.

There is virtually no company that was unscathed by this pandemic that has put half of the world’s population in quarantine. Even Big Tech such as Apple (NASDAQ: AAPL) suffered immense supply chain disruptions when China was on lockdown, not to mention the effect on revenue due to store closures. Going forward, the new blue chips will be the companies that will be able to endure this pause and quickly recover their operations once things restart.

Those companies mostly likely have the following characteristics:

  1. Their stocks prices, while they are at bargain now, show relatively low volatility within the new range. They will likely bounce back strongly once the market recovers.
  2. Long history of strong performance, including recovering from tough places.
  3. Commitment to their dividend policy, making the current low price a good buy in time.

     

Experts shares in Yahoo finance the following three companies as the contenders (Yahoo 2020). 

Contenders: Disney (DIS), Coca-Cola (KO), and General Motors (GM).

Disney:
The stock is trading 32% below its 52-week highs. They foresee the next several quarters to be incredibly tough due to plummeted revenues and unpredictable earnings.

However, the production company issued $7 billion of senior debt to soften the blow from the daily cash flow damages as it is losing $30 million per day. Their long history of high performance and the commitment to their dividend policy demonstrates lead many investors to think that the company should be able to hit the ground running as soon as it’s allowed to lace up those running shoes again.

Coca-cola:
Coca-Cola continues to generate substantial revenues even during these dark times as a consumer staple. The current 20% discount is a unique opportunity to entitle yourself to Coke’s 3.4% effective dividend yield. Just like Disney, Coca-Cola’s long history of endurance gives investors assurance that it will be sure to land on its feet when the economy and living in general restart.

General Motors:
GM already survived a worker strike last year, which was one of the longest in the past 50 years. In terms of their financial performance during the COVID 19 outbreak, GM has been relatively silent, yet, it has assured its investors that it’s in better financial shape than its rivals, at least for now. The company that once was the world’s largest motor-vehicle manufacturers has disclosed that it has drawn down its credit lines but has not suspended its dividend (unlike Ford).

While the current circumstance can make many investors wary, it can present wonderful opportunities if one knows what to look out for. However, just be aware that should study thoroughly before onboarding with any investment. After all, you should be well-informed as to where you are spending your hard-earned money.

With that in mind, let’s test how your current portfolio is performing. Analyze your portfolio for free for its level of risk and reward.

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Reference

1. Chen, James. “Blue-Chip Stock Definition.” Investopedia, Investopedia, 29 Jan. 2020, www.investopedia.com/terms/b/bluechipstock.asp.

2. DeCambre, Mark. “About 150-Years of Oil-Price History in One Chart Illustrates Crude’s Spectacular Plunge below $0 a Barrel.” MarketWatch, MarketWatch, 25 Apr. 2020, www.marketwatch.com/story/about-150-years-of-oil-price-history-in-one-chart-illustrates-crudes-spectacular-plunge-below-0-a-barrel-2020-04-22?mod=investing.

3. Duggan, Wayne. “’An Outlier Event’: Experts React To Oil Prices Dropping Below $0.” MarketWatch, MarketWatch, 21 Apr. 2020, www.marketwatch.com/story/an-outlier-event-experts-react-to-oil-prices-dropping-below-0-2020-04-21?mod=investing.

4. “Goldman Sachs Sees Doom and Gloom in These 3 Tech Stock Giants.” Yahoo! Finance, Yahoo!, 21 Apr. 2020, finance.yahoo.com/news/goldman-sachs-sees-doom-gloom-200800685.html.

5. Larkin, Michael. “These Are The 5 Best Stocks To Buy And Watch Now.” Investor’s Business Daily, 24 Apr. 2020, www.investors.com/research/best-stocks-to-buy-now/?src=A00220&yptr=yahoo.

6. “These Companies Could Rebound Sharply After The COVID-19 Crisis.” Yahoo! Finance, Yahoo!, 22 Apr. 2020, finance.yahoo.com/news/companies-could-rebound-sharply-covid-185825682.html.

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