What we're witnessing right now is truly unprecedented in a number of respects.
On one hand, the response to slow the spread of coronavirus disease 2019 (COVID-19), which had claimed over 7,000 lives globally, as of March 16, is something that many of us would have found unimaginable just a few short weeks ago. Throughout the United States we've witnessed school closures, sporting event cancellations, and even mandated shutdowns for restaurants and bars in select states.
Meanwhile, financial markets have been roiled like never before. It took a mere 16 trading days for the U.S. stock market to move from all-time highs to bear market territory, which is the fastest such move in history. We've also seen the iconic Dow Jones Industrial Average log seven of its nine largest single-day point declines, as well as its four-biggest single-day point gains, over a 15-session stretch. There's a very clear concern that a recession may be imminent.
But there is potential good news on the horizon, as portended by the CBOE Volatility Index (^VIX -6.27%), or VIX.
The Volatility Index suggests that now is the perfect time to buy stocks
The VIX is a measure of expected price fluctuations in S&P 500 options contracts over the next 30 days. In simpler terms, it's essentially a measure of implied volatility in the benchmark index. A low figure for the VIX would represent a period of perceived-to-be low volatility, whereas a high number signals the expectation of wild vacillations in the underlying price of S&P 500 options.
The VIX has often been dubbed Wall Street's "fear index" given that a high reading indicates an increasing amount of implied volatility, and presumably plenty of uncertainty for investors. But historic peaks in the Wall Street's fear index have also been clear signals that it's time to buy. Let's not forget that every single correction and bear market that's been thrown investors' way has eventually been completely erased by a bull-market rally.
Last week, the VIX reading topped 62, marking its highest level since December 2008, which was a mere three months before stocks found their Great Recession bottom. Anytime the VIX has moved near or above 50, it's been a signal for long-term investors to step in.
Furthermore, some of the world's greatest investors have shown that the market's biggest gains come during periods of heightened fear. Warren Buffett, in particular, has always been a fan of being "fearful when others are greedy and greedy when others are fearful."
With that being said, here are three stocks to buy with Wall Street clearly fearful about coronavirus' impact in the short term.
I know I've beaten the door down on Visa (V 4.51%) as COVID-19 panic has heated up in recent weeks, but there are a number of very good reasons to be excited about this payment-processing facilitator's descent -- and therefore your ability to buy it on the cheap.
Within the U.S., Visa has run circles around its competition. It held approximately 53% market share of U.S. credit card network purchase volume in 2018, translating to almost $2 trillion processed on its networks. What's more, the amount of money being processed on Visa's U.S. infrastructure almost tripled since the lows of the Great Recession. Visa saw just one year of relatively modest spending pullbacks in 2009, then came roaring back. With consumption playing such an important role in the U.S. economy, and the Fed moving lending rates back to historic lows this past weekend, the consumer has been given a free pass to spend at will.
Additionally, Visa isn't a lender. Rather, it solely focuses on ways to help merchants facilitate payments. This means that if consumer delinquencies become a problem, some of its peers might suffer, but it'll face no direct ill effects. When fear rears its head, Visa's stock is an excellent place to park your money.
A lot of worry has recently been cast on tech kingpin Apple (AAPL 2.45%), which warned that supply disruptions in China would adversely impact its upcoming quarter. Apple isn't alone by any means, but it's an obvious letdown given that consumers are eager for the launch of 5G-capable iPhones later this year.
But look at this from another angle. For one, Apple has generated $73.2 billion in operating cash flow over the trailing 12 months with an operating margin of almost 25%. It has more than enough room for error, especially with another $107 billion in cash on its balance sheet.
Apple has also been a veritable monster in the stock buyback department. Buying back stock reduces the number of shares outstanding, which in turn can have a positive impact on earnings per share. In short, it can make a stock look more fundamentally attractive. In 2018 and 2019, Apple repurchased roughly $71.1 billion and $78.9 billion worth of its common stock, in addition to paying out one of the largest nominal dividends in the world. Apple does a great job of taking care of its shareholders.
With Apple having a cult-like following, I'd expect 5G-capable iPhones, as well as its ongoing push into wearables and services, to provide more than enough juice to push its valuation higher over the long run.
Another perceived-to-be long-term winner that should be bought when others are fearful is warehouse club Costco Wholesale (COST 1.97%). And no, this selection doesn't have anything to do with consumer purchasing habits over the past couple of weeks, although it'll certainly help Costco's sales growth over the very short term.
What makes Costco so special is its combination of size and its reliance of memberships to improve customer loyalty. Costco is a behemoth of a retail giant, and since the company buys its products in bulk, it's often able to net discounts from vendors that it can pass along to its members. These "discounts" are what allow Costco's products to often be cheaper than similar products found in supermarkets.
Membership costs also play a key role in Costco's success. Paying anywhere from $60 to $120 annually for a Standard Gold Star or Gold Star Executive membership not only lines Costco's pockets and allows the company to offer products at lower margins than its peers, but makes members think twice about spending their money anywhere else. Further, Costco has little issue passing along occasional price hikes to its seemingly ultra-loyal members.
Coronavirus-induced fear has simply made an already great business that much more attractive on a fundamental basis.