At some point soon, long-term investors would be very foolish not to wade into the bloodied waters of the current stock market and buy hand over fist. So get ready to dust off that Warren Buffett hat.
The investment thesis would be rather simple: the cheapest valuations on equities of high quality companies seen in years if not more than a decade. While the coronavirus outbreak that is sweeping the globe is major near-term economic and corporate profit concern, the fact is interest rates globally are low (and perhaps headed lower, and will stay lower due to the aftershock of the coronavirus) and Corporate America is flush with cash. Companies have also de-leveraged their balance sheets nicely during this 11-year long bull market.
Those are very bullish setups for equities longer term once the current panic selling in the markets subside. Moreover, these are the same factors that sent equities skyrocketing in 2019 and in the early part of this year.
“Because there is still a real element of panic in markets, we could certainly see stocks move lower. But yes, we are certainly in the midst of a buying opportunity. We just may see a better buying opportunity over the next few days depending upon what happens and how quickly the Fed really creates confidence by articulating they are willing to act,” said Invesco chief global markets strategist Kristina Hooper on Yahoo Finance’s The First Trade.
Troll around Yahoo Finance Premium data (super helpful exercise in this treacherous environment) for a bit and some of the value coming to the surface is quite evident.
Taking a look at Carnival and Starbucks
Carnival Cruise Line has crashed 30% inside of a month on worries the coronavirus will harm cruise vacation demand well into 2021. Shares of Carnival trade at a minuscule forward price-to-earnings multiple of 7.5 times and fetch a 6.3% dividend yield (compared to a paltry 1.18% on the 10-year yield). Carnival has a wide moat around its business and cruise vacations are unlikely to vanish from civilization.
Or how about coffee giant Starbucks.
The stock has dropped 14% in the past month as the coronavirus has shuttered Starbucks stores in China. Starbucks has since opened many of its closed stores in the country, but Wall Street remains concerned about slow traffic as people stay off the streets. The stock is trading at its cheapest forward price-to-earnings multiple in over a year.
Believe me Starbucks’ usually surging China business will bounce back soon and the chain remains in fine standing longer term in the country.
This is the rationale investors should begin to use as equities approach the most oversold dating back to the 1950s.
“I think it’s a very attractive buying opportunity as long as people are not convinced that this entire thing will not cause a global recession or depression. And to me, the facts don’t match up to that,” noted Sevens Report Research founder Tom Essaye.
Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Watch The First Trade each day here at 9:00 a.m. ET or on Verizon FIOS channel 604. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.