Coronavirus Bear Market: Where to Invest $500 Now

Fast and furious is more than a movie franchise. It's an apt description of the fallout from the novel coronavirus pandemic.

On the U.S. stock market front, the three major indexes went from notching all-time highs in mid-February to plunging enough to kill the 11-year-old bull market by the middle of March. As of Friday, March 20, the S&P 500, Dow, and Nasdaq are down 32%, 35%, and 30%, respectively, from their record highs.

Amid this market backdrop, we're going to explore this question: Where should I invest $500 now?

Image source: Getty Images.

"Do not pass Go" until you have an emergency fund

When playing the board game Monopoly, being told "Do not pass Go" is a bummer. So, too, is hearing those words when you're anxious to put some money into the stock market. (But, hey, at least I'm not also instructing you to "Go directly to jail.")

But unless you have a solid emergency fund, that social distancing you're hopefully practicing with everyone should also be applied to the stock market. You need a chunk of very liquid assets at all times, and particularly now. This pandemic could go on for some time and leave many people jobless. 

For an emergency fund, three to six months of your household income is generally recommended. But, if possible, you should have more than that during this unusually turbulent time.

It's important to use dollar-cost averaging now

The pandemic is poised to sink the United States and the world into a recession. With that said, investors who have an emergency fund and a long-term investing philosophy don't need to stay entirely away from the market. Over the long term, the stock market has been the best place to make money.

If you invest now, however, it's particularly important to use dollar-cost averaging (DCA) to build your full position in each stock. DCA involves investing the same dollar amount at some set time interval (such as monthly, quarterly, or semiannually). If you use this method, you will avoid investing your full position in a stock at some recent price peak.  

3 stocks to consider buying now

Data sources: Yahoo! Finance and YCharts. Data as of March 20, 2020. EPS = earnings per share. YTD = year to date. *Wall Street's consensus estimates. **Zoom and Teladoc held their initial public offerings (IPOs) in March 2019 and July 2015, respectively. Over the three-year period, Teladoc has gained 492%, compared with the S&P 500's 4.4% return.

American Water Works: A top "recession stock" 

American Water, which is the largest and most geographically diverse publicly traded water and wastewater company in the United States, isn't a play on the coronavirus. Its business will be hurt by the pandemic. While the bulk of its revenue is generated from providing water and wastewater services to households, it also makes money by providing those services to commercial and industrial operations. And many businesses large and small across the county are shut down due to the pandemic, so their water usage will plummet. (That said, residential water consumption should increase since many more people are working from home, or at home rather than working elsewhere.)

For long-term investors, however, exactly how long it takes for most businesses to be operating again should be immaterial in several years. 

American Water makes my list because it should be one of the best stocks you can own to ride out the recession that's coming as result of the pandemic. During difficult economic times, fresh water is probably the last thing that most people cut back on. The company's industry-leading size and geographic diversity are the top reasons to favor it over its peers. These traits give it an advantage in acquisitions, which is a notable edge in an industry that's fragmented and consolidating.

During the Great Recession, which lasted from December 2007 to June 2009, the S&P 500 (including dividends) plunged 35.6%. Meanwhile, American Water stock (including dividends) fell less than 13% during the portion of the recession that it traded. (It began trading in late April 2008, so it wasn't trading for nearly the first five months of the recession.) 

Zoom Video Communications and Teladoc Health: More than just "coronavirus plays"

Zoom's video-first unified communications platform is geared toward a broad range of customers, though heavily businesses, along with certain other entities, such as educational institutions. Its videoconferencing and other products are enabling employees to stay in touch with their colleagues and others while working at home during the pandemic. 

Teladoc is the leader in telehealth. Patients and healthcare providers alike are keen on avoiding in-person visits at this time to help stem the spread of COVID-19. Moreover, the federal government is now heavily pushing the use of telehealth. The topic was mentioned many times during the Trump administration's coronavirus task force press conferences last week. Certain teleheath regulations have been temporarily eased to enable more patients to use these services. 

If these stocks were "mostly just" coronavirus plays, I'd say that you should pass on them because they've run up considerably already. But they are so much more. Both companies are at the forefront of what appears to be the early stages of a paradigm shift in the business and healthcare realms, respectively. Their products can save time and money over conducting in-person meetings or visits to a healthcare provider. Moreover, in Zoom's case, its products enable employees to more effectively work remotely.

There's much to like about both stocks, but Zoom is my favorite of the two largely because the company is already profitable, while Teladoc is not.

How should you you divvy up your $500?

Only you can decide how you want to divvy up your $500. A lot depends on financial situation and risk tolerance, as well as if and when you plan to invest another $500 chunk.

American Water, Zoom, and Teladoc stocks closed at $100.69, $130.55, and $141.74, respectively, on Friday. Some brokers allow you to buy fractional shares of a stock, so investing an even dollar amount in any of these stock is possible.