Investors are digesting the damage done to their portfolios in last week’s coronavirus-induced correction. There was no place to hide from the bears who bore their claws and shredded the market from its record highs. And the reality is there is probably more volatility to come.
Many companies had reported earnings before the depth and breadth of this outbreak became apparent. And that means that it will be months before investors get a chance to see how the true impact that Covid-19 virus will have on 2020 revenue and earnings.
For risk-averse investors, it may be tempting to take a breather from the volatility. But, as the market showed yesterday, the reward is there for those willing to take the risk. Still, for the next few months – and maybe longer – this will not be like fishing in a barrel. Investors will have to take a targeted look at which companies are well-positioned in this environment.
In this special presentation, we’ll show you five companies that address one of three areas that may benefit from the coronavirus. First, there are companies whose supply chains do not involve China. In theory this means their manufacturing should be less impacted from the virus.
Second, there are companies that are in the front lines of battling the virus. This can lead you into the biotech sector. And finally, there are stocks you can look at that can benefit from consumers taking safety measures to avoid getting the virus.
Quick Links
- Clorox
- Inovio
- Alpha Pro Tech
- DocuSign
- Netflix
#1 - Clorox (NYSE:CLX)
Clorox (CLX) Hopefully, the idea of washing your hands multiple times a day is a part of everyone’s daily ritual at this time. However, there’s still a need for disinfectants. And Clorox (NYSE:CLX) is one of the top names that comes to mind. The company is perhaps best known for Clorox Bleach, which kills 99.9% of germs on contact. But it also makes the disinfectant wipes and other cleaning products that are a staple in many households.
CLX stock is up over 13% in 2020 and despite the market correction, the stock was still up approximately 2.5% from February 25 to the opening of trading on March 3. The stock has largely been trading up on the assumption that their products will begin to fly off shelves in the upcoming days and weeks.
Clorox is a classic defensive stock. This means it makes products that consumers will buy regardless of market conditions. However, for that reason it also falls out of favor for many growth investors during bull markets. But in the current “flight to quality”, Clorox stands out. First, because given the nature of the Covid-19 virus, the stock should present a growth opportunity.
Second, CLX is one of a small group of Dividend Aristocrats. Clorox has increased its dividend every year for the past 43 years.
About Clorox
The Clorox Company manufactures and markets consumer and professional products worldwide. It operates through four segments: Health and Wellness, Household, Lifestyle, and International. The Health and Wellness segment offers cleaning products, such as laundry additives and home care products primarily under the Clorox, Clorox2, Scentiva, Pine-Sol, Liquid-Plumr, Tilex, and Formula 409 brands; professional cleaning and disinfecting products under the CloroxPro and Clorox Healthcare brands; professional food service products under the Hidden Valley brand; and vitamins, minerals and supplement products under the RenewLife, Natural Vitality, NeoCell, and Rainbow Light brands in the United States.
Read More - Current Price
- $164.44
- Consensus Rating
- Reduce
- Ratings Breakdown
- 1 Buy Ratings, 8 Hold Ratings, 5 Sell Ratings.
- Consensus Price Target
- $155.38 (5.5% Downside)
#2 - Inovio (NASDAQ:INO)
Inovio Pharmaceuticals (NASDAQ:INO) was one of the first companies to announce a potential vaccine to treat the Covid-19 virus. Initially, investors cheered the news and sent the stock soaring nearly 70% between January 24 and January 27. However, investors (or maybe it’s better to say trader) enthusiasm waned when reality set in.
The reality in the case of Inovio is that, at that time, it appeared any vaccine would not be available until the end of 2020, at least. And by the time vaccines get into the mass production stage, it was not clear that Inovio would be chosen to produce the vaccine.
To that end, on March 3, the company announced it was accelerating its timeline for developing a vaccine to treat the coronavirus. Inovio Chief Executive Dr. J. Joseph Kim detailed the company’s plans at a meeting with the Coronavirus Task Force that took place at the White House. Said Kim, “We immediately began preclinical testing and small-scale manufacture, and have already shared robust preclinical data with our public and private partners. We plan to begin human clinical trials in the U.S. in April and soon thereafter in China and South Korea, where the outbreak is impacting the most people.”
Inovio is now expected to deliver one million doses of the vaccine by the end of 2020. Shares of INO stock climbed 25% before the market opened on March 3 and are now up 73% in the last three months.
About Inovio Pharmaceuticals
Inovio Pharmaceuticals, Inc, a biotechnology company, focuses on the discovery, development, and commercialization of DNA medicines to treat and protect people from diseases associated with human papillomavirus (HPV), cancer, and infectious diseases. Its DNA medicines platform uses precisely designed SynCon that identify and optimize the DNA sequence of the target antigen, as well as CELLECTRA smart devices technology that facilitates delivery of the DNA plasmids.
Read More - Current Price
- $1.84
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 3 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $38.00 (1,965.2% Upside)
#3 - Alpha Pro Tech (NYSE:APT)
Like Inovio, Alpha Pro Tech (NYSEAMERICAN:APT) is an inexpensive stock that will be on the front line of the coronavirus defense. The stock is up nearly 340% in 2020 and that is after being up over 517% at one point. The company manufactures the N-95 face mask that is considered the gold standard for defense against the virus.
Some investors are expressing concern that the gains for APT stock may have already run their course. The conventional wisdom being that, if the virus fears mitigate, demand for the product may go down. While that may be true among the general public, I think that the N-95 may become the new standard in medical facilities, particularly in hospitals. As a society, once our institutions reach a certain standard for security, they rarely go backwards.
To illustrate this fact, Alpha Pro Tech announced in late February that is has booked $14 million in orders for one of its face masks. When you compare that $14 million to the $46.7 million the company earned for the entire year in 2019, you can see that, at least in the short-term, the company’s prospects look very good. For that reason, and because the shares are downright cheap for this market, it’s a good defensive play at this time.
About Alpha Pro Tech
Alpha Pro Tech, Ltd., together with its subsidiaries, develops, manufactures, and markets a range of disposable protective apparel, infection control, and building supply products in the United States and internationally. The company operates through Disposable Protective Apparel and Building Supply segments.
Read More - Current Price
- $5.37
- Consensus Rating
- N/A
- Ratings Breakdown
- 0 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- N/A
#4 - DocuSign (NASDAQ:DOCU)
DocuSign (DOCU) One of the best ways to reduce risk of exposure to the coronavirus is to minimize human contact. E-signature technology has existed for several years and DocuSign is the industry’s best-known name. DocuSign (NASDAQ:DOCU) is an application that allows individuals to authenticate documents with their electronic signature over the internet. There’s no need to meet in person, no exchanging papers or shaking hands afterwards. It’s all done electronically.
And DocuSign is not just a virus-inspired play. One of the big contradictions of the social media generation is how much they look to avoid human contact. If they can do something without having to have human interaction, they will. As a parent of three children ranging from 13 to 21, I see this behavior every day. I’m not sure what that says about our society, but I know what it says about DocuSign.
DocuSign saw sales grow by 14% in the last quarter. That would not be factoring in the arrival of the coronavirus. And though not profitable by GAAP accounting standards, the company is generating positive free cash flow. The company booked more than $50 million in cash profits over the past 12 months. And analysts project the company’s profitability may grow in excess of 58% annually over the next five years.
About DocuSign
DocuSign, Inc provides electronic signature solution in the United States and internationally. The company provides e-signature solution that enables sending and signing of agreements on various devices; Contract Lifecycle Management (CLM), which automates workflows across the entire agreement process; Document Generation streamlines the process of generating new, custom agreements; and Gen for Salesforce, which allows sales representatives to automatically generate agreements with a few clicks from within Salesforce.
Read More - Current Price
- $94.41
- Consensus Rating
- Hold
- Ratings Breakdown
- 3 Buy Ratings, 7 Hold Ratings, 3 Sell Ratings.
- Consensus Price Target
- $92.45 (2.1% Downside)
#5 - Netflix (NASDAQ:NFLX)
Netflix Finally, we’ll take a look at Netflix (NASDAQ:NFLX) which is ironically banned in China. But it operates virtually everywhere else in the world. And as if people needed any more reason to stay inside and binge watch Netflix, the coronavirus is giving them the perfect reason to do just that. Until the virus is deemed to be under control, it’s likely that consumers will be making different decisions of what to do with their disposable income. Public events may suffer. Activities like streaming services should benefit. And Netflix has the prime mover advantage. Many consumers view Netflix as a form of comfort food.
However, like DocuSign, don’t simply dismiss Netflix as a play against the virus. Last quarter, the company’s revenue surprised many analysts by climbing 31% on a year-over-year basis. Earnings were also a pleasant surprise with the company posting earnings per share (EPS) of $4.13 for the full year which was a 54% year-over-year increase.
And perhaps more importantly, the company saw its paid subscriber base climb to 8.76 million compared to a forecast for 7.6 million.
However, unlike a couple of the other stocks in this presentation, I don’t necessarily see NFLX stock as a long-term play. The company still has some fundamental issues that make its long-term outlook a little shaky for me. But for now, the company may benefit from consumers desire to stick close to home.
About Netflix
Netflix, Inc provides entertainment services. It offers TV series, documentaries, feature films, and games across various genres and languages. The company also provides members the ability to receive streaming content through a host of internet-connected devices, including TVs, digital video players, TV set-top boxes, and mobile devices.
Read More - Current Price
- $909.05
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 23 Buy Ratings, 10 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $807.70 (11.1% Downside)
One of the greatest fears among investors is the fear of the unknown. Especially when we don’t know what we don’t know. In that regard, if you can find a silver lining in the correction last week, it is that the market had the bandage ripped off. Investors that were complacent about the virus have realized that is a luxury they cannot afford.
At the same time, now that the facts are coming out, it gives investors a chance to react on known variables instead of fearful speculation. And right now, the facts suggest that, while serious, the Covid-19 virus is not the global plague that will have a disproportionate mortality rate.
As an investor, there are opportunities that exist in any market. And last week’s correction is no exception. With enough time for things to settle, investors are already starting to charge back into the market. But rather than take a shotgun approach, they are being more selective. The five stocks we’ve just presented are far from the only ones that may benefit in the coming weeks and months. But they give you a place to start your research.
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