Even amid pandemic, investor opportunities exist
The big question on the minds of many stock market investors is how quickly the various sectors can recover from the pandemicinduced economic crisis. Unfortunately, the worst is yet to come for some sectors until a vaccine is found, and perhaps a slow recovery for some even in the post-pandemic world.
But first, here’s the good news: Health care and information technology stocks have bounced back, so far, from the losses of the last few months, according to S&P data as of April 24. This comes as no surprise since history shows the health care sector has been relatively exempted from disease outbreaks.
Unlike other sectors whose allied companies are suffering budget shortfalls, the health care sector — which includes pharmaceutical manufacturers, biotechnology and life sciences companies — are receiving substantial research funds to combat COVID-19. In addition, the vast majority of the population covered by health insurance is able to continue to visit health care providers.
Similarly, information technology stocks have performed relatively well and should continue to see gains after the pandemic. Working from home has become the new norm, and adopting advanced technology allows us to transfer some job duties to remote work. Additionally, we can expect many businesses to adopt cloud technologies to enable management to maintain a level of control. This is a huge growth opportunity for IT companies.
We can expect consumer staples and consumer discretionary to be the next to recover. Companies belonging to these sectors should thank Amazon, a leading e-commerce player in the field. Traditional brick-andmortar stores will take longer to recover. But overall, we can expect an accelerated surge in product and service demands from these sectors after the pandemic wanes.
Financial and real estate sectors are among those hit hardest by COVID-19 and likely will see a slower recovery. Financial institutions are facing liquidity and default risks. The real estate sector includes companies that own college dormitories, hotels and resorts, and shopping malls, which currently are not producing profits.
The industrial sector likely will face difficult recovery in the post-pandemic world because of the illiquidity of capital goods and dominance of transportation services in the sector. Airlines will continue to offer a smaller number of flights than normal until a vaccine extinguishes the fear of contagion.
The energy sector is facing an uphill battle. Dominated by oil and gas industries, this sector is in bad shape because of the destruction of oil demands associated with the shelterin-place orders and the price war between Russia and Saudi Arabia. The average break-even oil price for the oil and gas industry ranges from $48 to $54 per barrel, according to the Dallas Federal Energy survey. With oil price levels hovering around $17 per barrel, and historical fiveyear averages showing that prices stay below $50 a barrel 40 percent of the time, tough years are expected.
COVID-19 has gravely affected the global economy, but it does not mean you should postpone investing in financial markets. In fact, as said by Warren Buffett, one of the world’s greatest investors, “Be fearful when others are greedy, and be greedy only when others are fearful.”