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2 High-Quality Stocks to Buy as the Coronavirus Sell-Off Worsens

By Daniel Sparks – Feb 28, 2020 at 7:05AM

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Two of the world's highest-quality companies are starting to look cheap.

The market's sell-off continued on Thursday, bringing the S&P 500's total decline over the past week to more than 8%. Fears about the spread of the novel coronavirus have spooked investors as they worry about the impact the outbreak will have on global productivity and -- ultimately -- companies' bottom lines.

While the coronavirus will undoubtedly have a negative effect on many companies' operations and sales, this doesn't mean investors should be bailing on stocks. Not only could the COVID-19 epidemic prove to only be a temporary headwind, but declining stock prices are creating buying opportunities for investors willing to buy when everyone else is selling.

Two high-quality companies with shares that have sold off enough to make them particularly attractive today are Apple (AAPL -3.00%) and Walt Disney (DIS -3.20%).

Chris Hemsworth as Thor in Thor: Ragnarok

Chris Hemsworth as Thor in Walt Disney's Thor: Ragnarok.


Shares of tech giant Apple are down about 12% over the past 12 days, giving prospective investors an opportunity to buy the stock at a great price. Apple now has a price-to-earnings ratio of 22, down from about 25 just one week ago. The stock may not be the bargain it was last summer, but a price-to-earnings ratio of 22 is an attractive entry point considering the tech giant's momentum in services and wearables.

Apple's services business, which accounts for nearly a third of the company's gross profit, saw revenue rise 16% year over year in fiscal 2019. 

The company's wearables business, which is part of Apple's wearables, home, and accessories segment, is growing incredibly fast. The total segment grew 37% year over year in Apple's first quarter of fiscal 2020, while revenue from wearables, specifically, increased 44% year over year. 

Meanwhile, Apple's bread-and-butter iPhone segment has returned to growth, with total iPhone revenue rising 8% year over year in fiscal Q1.

Apple warned that it expects to miss its fiscal second-quarter revenue guidance because of a slower-than-expected production at its suppliers in China and store closures in the market due to the coronavirus outbreak. But management also importantly said in its business update that customer demand across its product and service categories remains strong outside of the country. Furthermore, it noted that it believed its challenges in the market were only temporary.

Walt Disney

Shares of Disney have been hit hard on concerns over how the coronavirus will impact visits to its theme parks. Disney shut down its theme parks in China last month to help mitigate the spread of the outbreak. And travel to its parks in the U.S. will likely be unfavorably affected as well.

But investors should keep in mind that Disney is a sprawling organization, with operations that go well beyond its theme parks. Walt Disney also owns movie studios, operates television networks like ESPN and ABC, has streaming-TV services like Hulu and Disney+, and more.

Notably, management forecast only a small negative impact to operating income during fiscal Q2 due to its theme park closures in China. Management said it expected operating income during the quarter to be adversely affected by $175 million. Total operating income in the first quarter of fiscal 2020 came in at $4 billion. 

Time to buy?

If the coronavirus is finally tamed, investors may look back at this period as a great entry point into high-quality companies like Apple and Walt Disney.

Sure, just because these stocks look attractive doesn't mean they will bottom out today. Shares could continue falling. But it's impossible to know when market fears will subside and when the Street will start buying up quality, enduring assets like Apple and Disney. Investors willing to accept a bumpy road ahead may want to buy some shares of these great companies at good prices and hold for the long haul.

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple and Walt Disney and recommends the following options: long January 2021 $60 calls on Walt Disney and short April 2020 $135 calls on Walt Disney. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
$138.20 (-3.00%) $-4.28
The Walt Disney Company Stock Quote
The Walt Disney Company
$94.33 (-3.20%) $-3.12

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