In this episode of MarketFoolery, Chris Hill talks with Fool analyst Jason Moser about some market news. Mostly coronavirus. The guys discuss how the outbreak could affect certain companies like Starbucks (NASDAQ:SBUX) and Disney (NYSE:DIS), how it could affect companies across the board, some advice for sticking to your investing goals when the market gets shaky, and some trends to watch from company management in the next few quarters. Plus an update on D.R. Horton's most recent quarter, what it says about the homebuilder market at large, and what investors should do with this information; and answers to a listener question about how the coronavirus might affect software-as-a-service companies. Tune in to find out more.

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This video was recorded on Jan. 27, 2020.

Chris Hill: It's Monday, January 27th. Welcome to MarketFoolery! I'm Chris Hill. With me in studio, Mr. Jason Moser. Thanks for being here!

Jason Moser: Hey, thanks for having me!

Hill: We're going to talk about the coronavirus, because it is now starting to have an impact on the world of investing. But first, let's do a quick hit on housing because D.R. Horton, the home builder, reporting this morning. Shares hitting a new all-time high on Monday. D.R. Horton's first quarter is basically everything you would want to see if you're a shareholder, but also you're investing into any business that is related to new home construction. Profits and revenue higher than expected. It's the first quarter they raised their full-year estimates for new home construction. I mean, the stock is up about 3% today, but this is kind of everything you want, isn't it?

Moser: Yeah, I think so. And I mean, when you look at the history of this stock, one, three, five years, 10 years, I mean, it really has never been a bad time to own this stock over the last decade. And I'm not the biggest homebuilders guy in the world. I mean, it's just a lot of capital requirements there, and it can be very lumpy, and certainly a higher-risk space for mismanaged companies. But D.R. Horton is not a mismanaged company. They have really, I think, done a good job of just keeping expectations in check. And to your point, the quarter, it was very encouraging. And they talked about the net sales orders, which essentially gives us an idea of future revenue. Net sales orders grew 19% to just over 13,100 homes. And it grew 22% in value to $3.9 billion. There's a lot of money in there. But I think, to me, this isn't just about D.R. Horton's quarter. But about a week ago, we saw some really impressive homebuilder confidence numbers. It wasn't all that long ago, I mean, the National Association of Homebuilders and Wells Fargo Housing Market index showed that really, this is a great time for home builders, at least sentiment-wise. And the association president, Jerry Howard, he stated that he thinks that 2020 is going to be considered the roaring 20s in terms of the homebuilding market. He thinks this is going to be, pardon my French one hell of a year to be a homebuilder. And based on D.R. Horton's results, not only past but also what they're seeing in the future, they might be right.

Hill: They might be. I love whenever I hear, over the last few months, people refer to this decade as a roaring 20s, because it makes me want to go, "You know the roaring 20s of the last century, it didn't end so well. Are you aware?" Now, that being said, yeah, I saw that survey and I thought, "Ooh, boy." Even if you want to discount it slightly because they're talking up their own book, it's still shaping up to be a good year for housing. I mean, go back to last fall, when we were talking about the retail numbers, the National Retail Association coming out and projecting holiday spending, and what they thought it was going to be. And they nailed the number. So, it'll be interesting to see. It's certainly off to a good start.

Moser: Yeah, but I mean, maybe this is the glass-half-empty guy in me, but I look at those types of projections, those types of surveys, sentiment, and you have to flip that on its head and say, OK, things are really good right now. The market's forward-looking. I mean, it's bringing all of that future optimism into that share price today. So, one little hiccup, or perhaps a little bit of a correction in the market, or whatever ... So, it's not to say go out and buy homebuilders. I mean, that's not what we're saying here. I mean, we are saying that it's been a really nice ride for D.R. Horton shareholders over the last decade. And it seems like this year is shaping up to be another good year. But I would also argue that things are really good right now. Unemployment, looking pretty good. Generally consumer sentiment. Obviously homebuilder sentiment. We start to see that tide turn; the market will turn on these things pretty quickly. You have to be aware of that.

Hill: I know you have a couple of baskets already, so I'm not pushing you to create yet another basket of stocks. But to your point, I think that we've been consistent for the past decade on this show that if you want to invest in housing, spread out your risk. Don't go all in on the homebuilders. If there are a couple of homebuilders that you're interested in, maybe temper that with a Home Depot, a Lowe's, a business like Waste Management, which is obviously in the business of garbage. But certainly, when homebuilders are doing well, that's another business that does well.

Moser: It is. I would get cracking on that, but I'm still working on the Ron Gross convenience basket we discussed a few weeks ago on Motley Fool Money. You make me remember, I'd spoken with Nick Sciple a few times about this, and I think he had been working on putting together a basket sort of like what you're talking about there. I'll have to circle back with him after we get done today.

Hill: All right, let's talk about the coronavirus, because, as I said, this is now making its way into the world of investing. Obviously, this is a serious health issue. Right before we walked in the studio, I checked, there are now five confirmed cases here in the U.S. in Arizona and California. And, in terms of how this is playing out in the stock market, it's about what anyone would expect. It is travel-related stocks that are down -- airlines, cruise lines. In China, Starbucks, KFC, Pizza Hut, they've all closed their locations in the region. Disney resorts have been closed in Shanghai and Hong Kong. Hotel chains are waiving their cancellation fees. So, like I said, this seems like there's nothing unexpected in terms of, a week ago, if you'd said, "If this gets worse over the next week, what stocks do you think are going to be hit?" This is the list of usual suspects. And if this gets cleared up in pretty short order, then congratulations, you get to buy Disney 4% cheaper than you would have paid last week. Same for Starbucks. But it does present a potential longer-term risk.

Moser: I mean, potentially. I mean, definitely, I think first and foremost, when you look at the history of market moves, I mean, this at 1.5% is just a rounding error, right? I mean, we've dealt with situations much more urgent than this. And I was talking with Matt Frankel this morning as we were taping Industry Focus, and I just asked, what's one check? When you wake up in the morning and you see the market selling off 400 or 500 points, what are you going to do? And Matt said, "You know what? The first thing I don't do is I don't open my brokerage statement, because I don't need to go in there and try to maybe create a problem that doesn't really exist." Let's just remember, we're still in this for the long haul. And typically, when you look at all of that red, a we have a greater reaction to that loss than we do when we see a lot of green. And that red can create some urgency. So really, it is all about figuring out ways to manage your emotions. And so, I liked that check. And then I also like just looking back at history. I mean, this stuff happens all the time. I mean, whether it's SARS or Zika, or the avian flu, I mean, these things happen all the time. And, and so you have to assume as an investor, they're always going to continue to happen. Now, when they happen is anyone's guess. And that's why we don't subscribe to market timing, because it's just impossible to do. You look at some companies, like you mentioned there, Starbucks and Disney. I think making the prudent move there in shutting down operations in affected areas. And, they're very big companies. They're going to be able to weather that storm without too much trouble at all. It's always worth noting that when you're talking about consumer-facing businesses, whether it's Starbucks or Disney, they're not going to get those sales back. They're not going to double up on traffic once they open those stores back up. So in the near-term, they can be material losses, or at least losses that the business feels. But, when you talk about travel stocks, I mean, booking.com is the same awesome business today as it was a week ago. And, sure, maybe we'll see some decline in travel in the near term. And if that is the case, and you see a company like booking.com go on sale, I mean, I would argue that's a business you probably need to have on your radar. So, they're not all the same, but there are certainly ways to cope with situations like this. And it's also worth remembering that in the grand scheme of things, while certainly the coronavirus is a big deal and we don't want that to get out of control, for investors, this is still pretty minimal as it goes today.

Hill: It is. But I think it also provides an opportunity to look at your portfolio, see if you have any of these stocks, and start to pay attention, maybe a little bit more than you would otherwise, to how good a job is my company in my portfolio doing at communicating? This is to me a guidance check opportunity. Whether it's Starbucks, Disney, any of the airlines, the hotel chains, that sort of thing, it's going to be interesting to see how they communicate, how regularly they communicate, because this is one of those things where, as you said, particularly in the case of a business like Disney, in terms of what it means for the revenue for the quarter, it's not going to be a huge number. That being said, as a Disney shareholder, I want and expect that you're going to get the communication right on the guidance. I don't want the next quarterly report to come out and it's like, "Boy, that turned out to be so much worse than we were telling you." It's like, really? Why?

Moser: I'm going to be searching the word coronavirus in every earnings call this earnings season, because you're right, I think you want to see companies out there at least addressing it and communicating it. Very much like with the trade war with China, right? I mean, that's been a point of order for many quarters now, it seems like. And some companies were doing a better job at communicating how it would or would not impact their business. And so, yeah, I think you're right. That is a great learning experience, a great opportunity to learn more about the companies that you own, not only how they're communicating, how they deal with an issue like this, but also how exposed are they in the first place? I mean, maybe you don't realize that Apple makes 20% of its revenue from China, a third of its operating profit from China. And how is it going to impact a business like that? What about Disney and Starbucks shutting down operations? McDonald's, Yum! Brands? So, yeah, there's plenty to learn from that.

And the flip side is, you look at something like a Johnson & Johnson, which, that's just your staid, blue chip company that people probably don't really think much more about these days because it's just a slow grower. But, I mean, Johnson & Johnson is the one getting out there saying, "Hey, you know what? We're working on this right now to develop a vaccine." The one thing I have to say, the chief science officer with Johnson & Johnson, he says, "We're pretty confident we can get this vaccine done."

Hill: Please don't qualify that.

Moser: Yeah, that's kind of like that AT&T commercial. Just OK is not OK. So, even if you've got to lie to me, make me feel better about the situation. Not "pretty confident." Say, "Listen, man, we are on it, and this is happening."

Hill: Just tell me you're working on it, that's all.

Moser: Yeah, just tell me you're working on it. I'm certain that they will develop a vaccine, whether it takes a couple of months or even perhaps a year. I do think it's a testament to how quickly a lot of these companies out here can get into problem-solving mode when it comes to what could potentially be a global crisis. I mean, I don't think this is going to be a global crisis, but it does make you realize that, I mean, in many cases, capitalism does work. And this, I think, is a good example. I mean, Johnson & Johnson, the business has been around for a long time, has a lot of capital resources, and a big, long track record of solving a lot of problems like this. So, it's nice to see companies like that getting out in the forefront and saying, "You know what? We're on it, and we're going to have this figured out and then we'll move on to the next crisis."

Hill: Last thing before we wrap up. We've been talking a lot about consumer stocks. I got an email from Caroline Smith, one of our listeners, who writes, "I understand what consumer stocks could get hit hard by the outbreak of this virus, but is there any reason to think that B2B stocks, specifically software-as-a-service stocks, could also be affected?"

Moser: I would say probably the greater risk to those stocks today would be less directly tied to what is going on in China and/or with the coronavirus, but more tied to their astronomical valuations. And I think SaaS companies are a really good example of, there's a lot of great stuff out there, a lot of awesome businesses doing a lot of awesome things. It could be argued that valuations have gotten stretched in that segment. I mean, I think we're all looking at them and thinking, holy cow. A lot of these businesses still aren't profitable, and you're seeing them sell for 20X, 30X, 40X sales. So, I think that there is a risk not directly tied to the coronavirus, but more of a headline risk that plays out on their valuations. And that is not business-related. That is bigger-picture-related. And I think that if anything, that could be a welcome event for many. You have a lot of these companies on the radar.

Hill: If you're Constellation Brands, the company that owns Corona, just don't try and get cute with your marketing. I don't think they're in any danger of Corona sales falling dramatically, but if they come out with some marketing campaign that's like "more Corona, less virus"? Just don't.

Moser: And I said that to my daughters on the way to school this morning, you know, there's such an opportunity there, but, yeah, we say some of these things in jest. I mean, our job at the end of the day as investors is to try to find the opportunities, right? And yeah, I mean, there's the opportunity for Corona to do something with this, but they're going to have to tread very carefully.

Hill: Jason Moser, thanks for being here!

Moser: Thank you!

Hill: As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. That's going to do it for this edition of MarketFoolery. The show's mixed by Dan Boyd. I'm Chris Hill. Thanks for listening! We'll see you tomorrow.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.