The reaction to COVID-19 has created an interesting situation because of how the panic over the pandemic in the markets managed to nuke so many stocks in such an indiscriminate way. There doesn't seem to be a lot of rhyme or reason for the sell-off. Many investors are making a fear-based escape from stocks into cash, without much regard to the quality of the stock being sold.
As a result, it presents a good opportunity for savvy investors to pick up some of their favorite equities on the cheap.
Here are three companies whose stock has been hammered hard. All three are down 40% or more, and all three companies are sitting on piles of cash to help get them through the downturn. One of them should actually see business escalate in this emergency, as people stay indoors and look for things to do. And when COVID-19 runs its course and the emergency subsides, all three stocks should quickly bounce back.
1. Roku: A no-brainer investment right now
The drop in Roku's(ROKU 2.15%) stock price is ridiculous. It started the year at $136 a share. Now trading around $70 a share, the stock is down almost 50% in three months.
Of course, the entire market has been slammed because of COVID-19. And Roku has no profits. It's a high-growth company that has always enjoyed a sky-high multiple. So when revenue growth hits the skids, the market crushes the multiple and the stock loses half its market cap. This happens to fast-growing stocks all the time. And that's what's happening here, right?
Wrong. There's no evidence that Roku's revenue growth has stalled. While COVID-19 has put much of the American economy in temporary lockdown, Roku is one of the few stocks that should excel in this environment. So the sell-off seems irrational. Yet the contrast of the stock's performance to some other stay-at-home stocks in 2020 could not be starker:
Most Recent Quarter
|Stock Return (Loss)
|Zoom Video Communications||47||78%||57%|
People staying at home will watch more television, not less. The idea that Roku's revenue will suddenly drop because of COVID-19 seems counterintuitive, to put it mildly. While some people are selling Roku's stock, long-term investors should not only hold the course, but might also want to add shares at these levels.
2. IMAX: Might get cheaper before it recovers
Unlike Roku, the free fall in shares of IMAX (IMAX -0.59%) makes a lot of sense, at least in the short term. The pandemic has shut down movie theaters around the world. With governments around the world advising their citizens to avoid any crowd of 10 or more people, movie theaters are barren. In some places, you can't see an IMAX movie even if you want to. China, for instance, shut down all its movie theaters, including the 702 IMAX screens.
So while the coronavirus outbreak is actually beneficial to Roku, it's been devastating to IMAX. The company's revenue decline is going to be ugly. It's not at all surprising that IMAX shares are down to the single digits. On Tuesday, a bullish day for the market, IMAX stock dropped another 20%. And it might keep falling in the short term. But the cheaper it gets, the more astounding the upsurge will be.
COVID-19 is a temporary problem. IMAX theaters will reopen. And all the people going stir-crazy from being cooped up inside will flock to see the big show. In 2020, IMAX fans will see the new James Bond film, No Time to Die, as well as Christopher Nolan's new $200 million release, Tenet, and Wonder Woman 1984. All three of those movies were partly shot with IMAX cameras. 2021 promises to be an even more epic year, culminating in the release of Avatar 2.
IMAX has no debt issues and plenty of cash to weather this storm. The coronavirus will be a blip for this stock. And it's a magnificent opportunity for investors who can look beyond the next couple of months.
3. Amarin: Why is this stock crashing?
Irish biotech Amarin (AMRN -3.36%) is down about 50% for the year. It might surprise people that a drug company could fall so far during a health emergency. Pharmaceutical companies, like food companies, are usually a great defensive investment in bad times. People need their medications regardless of what is happening in the world. And it's highly likely that the patients who have been prescribed Vascepa, the company's drug to reduce triglycerides, will continue to use the pills. Vascepa has been on the market since 2012.
The problem is that future expectations for Vascepa were sky-high. The drug's label was just expanded in December by the Food and Drug Administration. The new label says that Vascepa not only reduces your triglycerides, it also reduces cardiovascular risk in patients with high triglycerides.
This was a major change in the label. One-quarter of Americans have high triglycerides (which are a precursor to high cholesterol). And it's not generally known that reducing your triglycerides can reduce your odds of suffering a major adverse cardiac event.
That's why Amarin doubled the size of its sales force to 800, to educate doctors and patients about the importance of reducing triglycerides. And prior to COVID-19, sales of Vascepa had been skyrocketing. Revenue was up 87% in the company's most recent quarter. But now, because of the outbreak, Amarin has suspended its sales force during the month of March. So sales are expected to stagnate in the near term.
Nonetheless, like Roku and IMAX, Amarin should bounce back strongly once things return to normal. While all three of these stocks are likely to be highly volatile in the short term, investors with a longer time frame should do quite nicely considering stock from these companies.