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Amid Coronavirus Uncertainty, Should You Buy or Resist?

By Mac Greer – Updated Feb 6, 2020 at 8:28AM

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Economist Mohamed El-Erian says, “We should resist any inclination to buy the dip.” See what our analysts have to say.

In this episode of MarketFoolery, Mac Greer is joined by Motley Fool analysts Andy Cross and Ron Gross and they discuss the effects of coronavirus on the global supply chain and how the industry and governments are reacting to this situation. They offer some tips for investors on how they can position themselves to get better results.

They then have some light discussion about the Super Bowl ads.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on Feb. 3, 2020.

Mac Greer: It's Monday, Feb. 3. Welcome to MarketFoolery. I'm Mac Greer, and I'm joined in studio by Motley Fool analysts Andy Cross and Ron Gross. Gentlemen, welcome. How are we doing?

Andy Cross: Hey, Mac.

Ron Gross: I'm good, Mac. How are you?

Greer: I'm doing good. We're going to talk some Super Bowl. We're going to talk about the ads, winners and losers. But we're going to start on a slightly less light note. And by slightly, I mean, a lot less. We're going to talk coronavirus. The U.S. issuing a travel advisory, warning residents not to travel to China. China's foreign ministry accusing the U.S. government of feeding mass hysteria. Now, we're a business show and we're a show for investors, so we want to talk about that angle with this unfolding story. Economist Mohamed El-Erian saying the virus is going to paralyze China and cascade throughout the global economy. And, Andy, he says, "We should resist any inclination to buy the dip."

Cross: Well, Mohamed, like every other analyst and student of the market and then scientist -- when it comes to the coronavirus -- is operating under a lot of uncertainty. There's a lot we just do not know about this virus. So I think a lot of information is being spread, hopefully, trying to be helpful, but also, it starts to send people in a little bit of a certainly worried, if not panic mode.

This is a virus we just don't understand, we don't know a lot of information -- have a lot of information about, Mac. So the studies and some of the research that's coming out about how fast it is spreading, even though the death rate is a little bit lower than what we saw with the SARS outbreak from 2003, it's spreading very rapidly and very fast. We just don't have a lot of information. So a lot of analysts out there are making predictions. And so, obviously, Mohamed is making a prediction here that it's going to spread and don't be interested or don't be in a rush to buy the dip.

So the way that I'm thinking about this, this is a very serious situation. We see a lot of companies from Apple to Starbucks and other ones -- to the United States government, obviously -- it's starting to impact their business. We talked about this last week on the radio show, Starbucks closing some of their stores. They've already closed more than half in China. And Apple has closed some of their stores and a lot of their operations as well. So it is impactful into those businesses. I think as long-term investors, we have to understand that there are going to be situations like this. We just don't have information, we don't know, especially when it comes to health outbreaks.

And that the markets, especially today, that are operating and taking information and making quick decisions and making conclusions. And that's impacting millions, billions of dollars that's been traded in the marketplace very rapidly. So individual investors, long-term investors like us, have to take all that information in, make sure that we are set to understand how this may impact our portfolios and that our portfolios are set up appropriately from a risk mitigation perspective.

So, for me, I'm thinking, OK, do I need to have some more cash on the sidelines? Because I don't know, this might last two days, this might last two months, it might last a year. It depends on how the markets are going to react and the seriousness of the virus and the implications on businesses.

So I just want to make sure our investors are ready for a situation like this, because as we know, the studies show the markets are very fluid and they fall 10% every year or so, that's just a typical kind of like regular market cycle. And these situations come in -- interest rates rise, they fall, they drop, viruses come out and they spread; this is a very serious situation. We don't know. So investors have to make sure that their portfolios are set up to handle situations like this in the short term.

Gross: Yeah, I think it makes sense to compare this to the SARS virus in 2002-2003; it's the most comparative thing we can look to. That crisis was really measured in terms of months, and then we had a pretty dramatic rebound. This does seem like it has a potential at least to be much worse. So it's SARS times two. I don't know. As Andy said, we don't know how bad this is going to be.

China has become such an essential part of the global supply chain that this will reverberate around the global economy, obviously. It's not just a China problem. So, you know, semiconductors are going to be impacted. As Andy said, Apple, Starbucks, Walmart will be impacted, lots of stores over in China. General Motors sells more cars into China than it does into the U.S. So lots, lots of industries here.

So what is one really to do? So I, personally, would maybe wait to put money into some of those industries most impacted. I would agree with Mohamed -- don't be too ready to jump in, because this could continue to get worse. But on the other hand, I'm also not selling. I'm not going to sell my Starbucks because they perhaps are going to have a shaky six to 12 months or who knows how long. I will take a longer-term perspective. If I owned a store that was down here on the corner of Alexandria, Virginia, and I knew I was going to have a bad year because the flu virus was really tough and people were not coming out to my store, I would not be looking to sell my store, I would take a much longer outlook. And as Andy said, see if you have money on the sidelines and then, when appropriate, maybe it would be nice to get some bargains.

Let's take one more thing into account. In 2002, the valuations were not stretched, like they are now, so investors are almost looking for a reason to sell stocks off.

Cross: I think that's a great point, Ron, too. Because we come off this massive, fantastic 2019 year, we've entered 2020; it's an election year. So as Ron said, investors are looking for reasons to get rid of their stocks and start to make these wholesale decisions, where it's like, I'm in or I'm out. And we really want to advise listeners out there and members and investors who follow our advice to not to take that perspective. If you want to have some -- use this is an opportunity to maybe take some money and build up your cash position. I think that's smart. I wouldn't certainly not go whole hog, but if you want to add a few more percent to your holdings into cash, I think that's fine. We're coming off a very good time in the markets, and the stocks have been now historically selling at a richer multiple. So this situation could be a chance to make sure that your portfolio is set up to be able to last for the length of any kind of timeline around this virus.

Greer: But what about the person who sees this story? I mean, we often say and we hear and we know that emotion can be the enemy of investors, right? It can lead us to make bad decisions, decisions that are much more short term-focused. So what about someone who's watching this play out and they say, "You know what? It's the same business that it was a month ago. It just happens to have been particularly hit by this in the short term, so why not buy more?" What do you say to that person who says, "This is a hiccup; it's the same business, so I'm going to take this opportunity and I'm going to invest"?

Gross: That actually is a fair thing to say, and you probably would be fine doing that. Who's to say if it's going to get even weaker and you would have an opportunity to buy it even cheaper? No one really knows that. So, like Warren Buffett says, "If you have a steak on Monday and the same steak is cheaper on Friday." He loves that, and he's happy to buy the same steak at a cheaper price. So you can do that in this particular case. Just don't be impulsive, I think, is what Mohamed was kind of saying, and I agree with that. Either on the sell side or the buy side, impulsiveness never works.

Cross: I think what's really critical is understand your holding time period and that if you're going to be an investor who's holding these businesses for three, five years, you can certainly take that approach. If you're a little bit more short-term, this is one reason why we don't like being the short term, is, these stocks are going to be more volatile. Their businesses will be hit. Ron pointed out a couple of industries. And in fact, I think a lot of industries will be hit by this. So understand that's going to have an impact on earnings. So if your time horizon -- again, please stretch out your time horizon; think more in those three-, five-year periods, even longer, when you're buying businesses and being a long-term investor in those and taking advantage is fine, to Ron's point. And to Mohamed's, maybe not just be -- never be impulsive and certainly don't use this as a chance to start being impulsive.

Greer: OK. Well, it's time for an abrupt segue. We are going to move to the Super Bowl.

Cross: Silly rabbit, segues are for kids.

Greer: [laughs] And Super Bowl commercials. I want to get your thoughts on the Super Bowl commercials, and we're going to start with the top five commercials according to Ad Meter. The No. 1 ranked commercial was Jeep's "Groundhog Day," featuring Bill Murray. No. 2 was Hyundai's smart park. No. 3 was "Google Loretta," where the man used Google Assistant to bring up memories of his late wife. No. 4 was Doritos' "The Cool Ranch," which featured a showdown between Lil Nas and Sam Elliot. And coming in at No. 5 was Rocket Mortgage's "Comfortable" spot, featuring the guy who plays Aquaman.

Gross: Jason Momoa, right?

Greer: Yes. So let's lead off, Ron Gross. Do you have a standout or favorite or overall thought on Super Bowl ads?

Gross: I thought they were pretty good this year. I'm not one that is glued to the TV, can't wait for them, but I always keep an eye on them. And this year, I think they were pretty good. Some fell flat for sure. The Google ad, boy, oh, boy! That got me. I had to excuse myself for a moment, pretend that I had some allergies I needed to clear out, because that was pretty emotional. It was pretty impactful.

Greer: Tears? Were there tears?

Gross: You know, I got glossy eyed. How about that?

Greer: Yeah, I got a little weepy.

Cross: I thought the second-half commercials were much better than the first-half. I like that list that Ad Meter -- I'm not sure who Ad Meter is or how they rate these ads, but I liked all that they mentioned. I thought the Alexa ad from Amazon with Ellen DeGeneres and Portia --

Gross: ... de Rossi?

Cross: ... de Rossi. I thought that was very good. I liked the idea of, like, how did we live before we could just kind of ask Alexa? And they kind of went through different historical funny situations. I thought that was a nice ad that basically pointed to the value of this but also spoke to the brand, the brand power of Alexa and Amazon, in general. Overall, I thought they were OK. I didn't think any were particular super-funny, although I did like the Bill Murray ad for Jeep was pretty funny.

Greer: Loved that.

Cross: But I had to explain to my daughters, because they didn't understand who Bill Murray was and Groundhog Day, but they're less than 10 years old, so.

Greer: Yeah, it was built around the movie Groundhog Day.

Gross: Smart Park made me laugh the most I think or made me smile the most, because that was very clever. [laughs] And I would watch that again, actually, whereas most of these it doesn't appeal to me to watch again.

Greer: So in terms of the business impact, is there one of these ads that you look at and you think, you know what, I think that did the most for the business?

Cross: One that I particularly had a little bit of a discussion in my family, because it was environmentally focused, was the Michelob Ultra Pure Gold ad that talked about the environmental impact for farmers. So Michelob is transitioning 6 square feet of farm land to organic for every six-pack that you buy of Michelob Pure Gold 6. So that way it helps farmers, as we transition, and also helps the environment. I thought that was very impactful for Michelob and for their consumers.

The other ads, because they're such large companies, I was like, wait, what's the real value of them? But this one was, like, directly, oh, I can see my benefit if I buy the six-pack. I can help the farmers who help provide the products. So I thought that was impactful from a consumer side.

Gross: Yeah, I think some of the ones we mentioned resonated from a business perspective. The Amazon Alexa one really reminds you of how far we've come and all the amazing things that we can now do with voice-activated computers like Alexa. I think the Google one would stick with me. Think of all the things that you can do using Google. For some reason, the Verizon ad, which I haven't heard many people talk about, the one that's focused on 5G and the firefighters. That really stuck with me, and I think it will continue to stick with me because it kind of had an emotional impact on me. It didn't have much to do with 5G. It didn't really tell you what 5G was or really what it would do, but it's going to stick with me.

Greer: OK. Well, as we wrap up here, I want to do a lightning round and spot you up with a few of the other ads and get your quick take. And let's begin with the Snickers ad. I actually liked this ad about Snickers and feeding the world with Snickers, because it actually brought back memories of the old Coca-Cola ad: "I'd Like to Teach the World to Sing," where they're all walking and singing and everyone is feeling good. What do you think about the Snickers ad?

Gross: The singing was fine. I didn't get the big hole at the end. [laughs]

Cross: [laughs] ... someone fell in the hole, I think.

Gross: [laughs] Yeah, I thought it felt a little flat for me.

Greer: They were feeding the earth; they are feeding the world.

Gross: Yeah, OK. [laughs]

Cross: I thought it was fine. I mean, the huge Snickers bar they carried in with the helicopter, I think, at the end. Like, it did put to bed that it was Snickers, so I liked that. But I didn't really think the ad was particularly that great.

Greer: OK. Facebook's ad for Facebook Groups. I confess, I really liked that ad.

Cross: Yeah, I liked that one. Yeah, I saw a couple of articles that kind of pandered it a little bit, but I thought it was -- I think that was their only ad. So I appreciate the fact that they were going out there trying to emphasize the value of the Facebook network and the ability to connect people. So I thought that was pretty good.

Greer: And how about the Microsoft spot featuring Katie Sowers, the first woman to coach in the NFL. She's an assistant coach with the San Francisco 49ers.

Cross: I really liked this one. This is one of my favorite ones. It was very light on Microsoft. Not until the end did you really understand that it was Microsoft, I think, generally. But I thought that was very powerful and spoke to the real testament to what Katie has done at the 49ers. That's very impressive.

Gross: I agree. I don't think it does much for Microsoft, but I think it was still a great, great message for folks watching.

Greer: And let's close with the Planters ad. Now, there was a lot of kerfuffle over the last couple of weeks about the death of the Planters peanut guy. And so the Planters ad, in case you didn't see it, it's Wesley Snipes presiding over the funeral, and you think that basically that Mr. Planters Peanut guy is dead, and it turns out that he is reincarnated, right, as a baby, as a baby peanut.

Gross: Yeah. I think it's a big miss there. And I didn't get why the baby peanut sounded like a dolphin.

Greer: [laughs] He did sound like a dolphin.

Gross: [laughs] I didn't get it. The only funny part of that was when he said something like, "Where's my monocle?" That made me giggle. [laughs]

Greer: Yes. And it was all so odd that Mr. Kool-Aid -- Mr. Kool-Aid was at the funeral and he was crying. You know, the big pitcher of Kool-Aid. And his tear is what brought Mr. Peanut back. And you know what? I don't think they would have been in the same social group. So the ad -- I mean, would you picture Mr. Peanut and Mr. Kool-Aid hanging out together?

Cross: [laughs] No. I didn't get this one.

Greer: I mean, I think Mr. Kool-Aid was more of an intro ... I'm not sure he had a lot of deep friendships. I mean, I know he's a nice, fun guy.

Gross: [laughs] The Kool-Aid guy is a bit boisterous.

Greer: He's boisterous. I mean, are you hanging out with him? The whole thing -- I mean, on a slightly more serious note -- I think the reason that didn't work, I'm not sure people really care about Mr. Peanut. I mean, were you affected at all by his death?

Gross: [laughs] Not in any way.

Cross: No.

Greer: OK. Well, there you go. [laughs] So that was a miss.

Gross: [laughs] But we did talk about it around the office quite a bit, so maybe that's what Planters was looking for.

Greer: But what we talked about is, they gave him this back story where he's in World War I and I'm, like, that's a terrible back story, because if you're serving in the war and you're like in a trench with Mr. Peanut, you're so bummed, you're like, "Oh, my gosh! I'm a dead man."

Cross: And when you say "we" around the office, do you really mean Mac?

Gross: Yeah, Mac.

Greer: Yes. OK. As we wrap up. The desert island question. Let's focus on four of the big publicly traded companies that advertised on the Super Bowl. You're on a desert island for the next five years. You can only own one of these stocks: Amazon, Alphabet, Microsoft, or Facebook?

Gross: Well, first of all, I think you should own all four. And that's a nice little portfolio you've got there. If I had to pick one, it's literally almost impossible.

Cross: I own Facebook and I used to own Microsoft. I'm kicking myself for selling that, of course, you know.

Gross: Not Facebook; that would be my last on the list of the four.

Cross: I'll say Amazon.

Gross: I'll say Microsoft, just to take the other side of the trade -- the other side of the cloud trade.

Greer: I like that. That was a good one. OK.

Well, as always, people on the show 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.

Andy and Ron, thanks for joining me!

Gross: Thanks, Mac!

Cross: Thanks, Mac!

Greer: That's it for this edition of MarketFoolery. The show was mixed by Dan Boyd. I'm Mac Greer. Thanks for listening, and we will see you tomorrow.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Andy Cross owns shares of Facebook and Starbucks. Mac Greer owns shares of Alphabet (C shares), Amazon, Apple, and Facebook. Ron Gross owns shares of Alphabet (C shares), Amazon, Apple, Facebook, Microsoft, Starbucks, and Verizon Communications. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Facebook, Microsoft, and Starbucks. The Motley Fool recommends Verizon Communications and recommends the following options: long January 2021 $85 calls on Microsoft and short January 2021 $115 calls on Microsoft. The Motley Fool has a disclosure policy.

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