It's getting downright ugly out there.
As the world reels from the outbreak of illness caused by the SARS-CoV-2 coronavirus, the financial markets are following suit. Each of the major U.S. stock market indexes has plunged into a bear market, down more than 25% since beginning the descent in mid-February.
While it's certainly no fun to see a portfolio awash in red ink, it's important to remember the sage words of investing legend Warren Buffett, who has advised investors exactly how to profit from situations such as these:
I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.
Even as the market tanks, opportunities remain. With that in mind, let's look at three stocks that have strong prospects in the coming years, once the coronavirus pandemic has run its course.
1. Disney: the Emptiest Place on Earth
It's easy to understand why investors would be wary of Disney (NYSE:DIS) right now. After shuttering its two locations in China, the House of Mouse announced last week that for just the third time in its history, the company is closing nearly all of its major theme parks, this time in response to the coronavirus. Consumers are avoiding movie theaters, and films are the linchpin of Disney's empire. The company is also locking down many of its cruise ships, resort hotels, and shops to help combat the spread of the disease, so it's clearly an uncertain time for Disney investors.
Yet even in the face of all that uncertainty, there are reasons to be upbeat. Even though it gets less of the spotlight, Disney's media networks segment (which includes its television networks and cable channels) has long been the company's principal breadwinner. Not only is it historically the biggest producer of revenue, accounting for 36% of sales, but it's also the biggest profit center, responsible for more than half the company's operating income last year. With more and more businesses and schools closing, there will no doubt be a higher number of viewers than usual, helping increase ad revenue.
Let's not forget the recent debut of Disney+, the company's streaming service. As families huddle at home, closed off from the outside world, many will see spending $6.99 per month for family fare as a relative bargain, boosting its subscriber numbers.
It's important to remember that it won't be long before consumers are donning mouse ears and Disney's theme parks, cruise ships, and resorts will once again be the Happiest Places on Earth -- rather than the emptiest.
2. Starbucks: no longer a haven for the coffee drinker
Starbucks (NASDAQ:SBUX) was among the first to sound the alarm, announcing in late January that it was closing half its stores in China (more than 2,000 in all) while reducing operating hours at those that remained open, to help contain the spread of the coronavirus. By early February, the number of closures had skyrocketed, peaking at about 80%. Now, just six weeks later, more than 90% of its stores in China are back in operation, though foot traffic has yet to return to normal.
The company issued a sobering forecast, saying it expects sales in China to fall 50% year over year for the second quarter, with revenue down $400 million to $430 million, and hitting earnings per share by $0.15 to $0.18.
With the U.S. now in the grips of the outbreak, Starbucks is taking what it learned in China and applying it to its locations in the U.S. to help maintain as much of its business as possible, even as the epidemic continues. Starbucks is taking a number of preventive measures in its domestic stores, recently announcing that it will temporarily shift to a "to go" model, closing down the seating areas and patios for at least two weeks to "encourage social distancing." At the same time, the company is promoting its "order ahead" feature and the Starbucks app, and reminding customers that beverages can be delivered, as well as picked up at the counter or the drive-thru.
The good news is that the majority of Starbucks stores in its biggest market will remain open, giving consumers a much-needed dose of the familiar and a respite from all the doom and gloom. While Starbucks will take a temporary hit from the disruption to people's day-to-day routines, it's highly unlikely that coffee drinkers will forgo their daily habit for long, meaning that Starbucks' business will return to normal over the long run.
3. An Apple a day won't keep the doctor away
Apple (NASDAQ:AAPL) was another company that sounded the alarm early on and took proactive measures in China to help stem the tide of the rapidly spreading virus. The company closed all its retail stores in the most populous country, but also saw its manufacturing capabilities dented as the outbreak shuttered production lines. This led Apple to conclude it wouldn't hit its previously issued quarterly guidance.
Apple announced late last week that all of its retail locations in China have since reopened, but just days later made the decision to close retail stores worldwide -- except for those in China. This is no doubt weighing heavily on the mind of Apple's shareholders.
Yet for all the disruption to Apple's business, all is not lost; in fact, it's likely just delayed. Just before the outbreak, Apple reported a record quarter, and there's likely more where that came from. Evercore ISI analyst Amit Daryanani wrote in a note to clients in late February that while he's lowering his revenue estimates, he thinks that although sales have been "pushed out," they will eventually be made (emphasis mine):
Our estimate reduction is predominantly driven by [coronavirus-related] supply issues and to a lesser extent weaker demand trends in China. However, we think revenue has merely been delayed versus lost and our [fiscal year 2020] estimates are unchanged -- though we concede this is a fluid situation and revenues could be pushed out further into the December quarter.
Wedbush analyst Daniel Ives made a similar pronouncement, saying, "We believe this is a more of a timing issue rather than an extended supply/demand issue for iPhones globally and does not change our longer-term bullish thesis."
The investor takeaway
It's important to remember that the selling frenzy that has captivated Wall Street in recent weeks may not be over, and anyone who says they can time the bottom simply isn't being honest.
That said, after losing a significant portion of their market caps in recent weeks, each of these blue-chip stocks has solid long-term businesses that will come roaring back when the coronavirus pandemic has run its course. Investors who scoop up shares at these depressed levels will look back several years from now and be very glad they did.