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The coronavirus has spread seemingly indiscriminately, but its impact on stocks has been more focused. Shares of airlines, casino operators, and oil companies have fallen more than 10% as the coronavirus has expanded through China and overseas. The overall market has had a more muted reaction. The
S&P 500
index hit a new high on Jan. 17, after notching its best weekly performance since August. By the following Monday, the extent of the outbreak had become apparent, and stocks have since fallen on every new development showing its advance. Nonetheless, the index is down only 3.1%.
The subdued response has historical precedent. The S&P 500 fell 0.4% in the month after the Zika virus made headlines in 2016, and rose 5.1% in the month after SARS began to spread in 2003. In both cases, the stocks were sharply higher a year later. Read Next: Sports Gambling Will Be a Huge Opportunity. Bet on These Stocks. That doesn’t mean that the latest coronavirus, which is similar to SARS, won’t spread and impair industries that have so far gone unscathed. Yet investors can still find bargains among some of the stocks that have been battered. Travel has borne the brunt of the selling.
United Airlines Holdings
(ticker: UAL), which makes more revenue from China than its large U.S. competitors, is down 17% since Jan. 17, to $74.80 on Friday. “When looking at past health scares, such as swine flu or Ebola, the selloff in airlines has proved to be a good buying opportunity for the long term,” John Petrides, portfolio manager at Tocqueville Asset Management, told Barron’s in an email.
Delta Air Lines
(DAL), for instance, now trades at 7.6 times its expected earnings for the next four quarters, below its historical average, despite reporting earnings this month that were 18% higher than expected. Cowen analyst Helane Becker recommends the stock, trading recently at $55.74, at these levels. Cruise-ship operators have also fallen. A
Carnival
(CCL) ship was held at an Italian port on Thursday after a passenger exhibited symptoms of the virus. (The passenger tested negative.) Both Carnival and
Royal Caribbean Cruises
(RCL) have fallen more than 10%. And companies that make money in Macau, China’s gambling center, have tumbled.
Wynn Resorts
(WYNN), which makes most of its revenue from Macau, is down 17% since Jan. 17—among the worst-performing S&P 500 stocks over that period.
Booking Holdings
(BKNG), the online travel company that owns sites like Priceline, has been punished, too. Its stock now trades at 16.3 times expected earnings, down from its average valuation of 19.7 times. Becker’s colleague Kevin Kopelman recommends buying it, writing that he’s “confident in long-term growth prospects in the travel category.” Other sectors have been hurt, as well. Retailers that are growing in China have sold off.
VF Corp.
(VFC) is down by double digits, and
Starbucks
(SBUX) has slumped 4.3% after saying that it temporarily closed half its stores in China. Energy, already a laggard in 2019, has struggled since the virus began spreading. The price of crude oil has dropped 10% since Jan. 17. The
SPDR S&P Oil & Gas Exploration & Production
exchange-traded fund (XOP) is down 14%. The selloff has been indiscriminate because “the market has clearly adopted a sell-first, ask-questions-later approach to the coronavirus,” wrote RBC Capital Markets analyst Michael Tran in a note on Thursday. Some analysts think that high-quality oil producers now look more attractive. Goldman Sachs analyst Brian Singer recommends shares of
Parsley Energy
(PE) and
Concho Resources
(CXO). Write to Avi Salzman at avi.salzman@barrons.com
