In this three-part series, I first discussed why the Coronavirus is important to investors and what the Health Care officials who have been tasked with working on controlling the situation have said in terms of where we are and how people should not panic, but be prepared.
With that thought in mind, I recently wrote about the types of stocks and ETFs investors should consider avoiding if this virus outbreak does get worse and turns into a real pandemic. Now I would like to discuss the types of stocks and Exchange Traded Funds that investors should consider owning if the virus continues to spread uncontrollably and the situation worsens. (Again, though, fear and panic don't help anything, so most of the stocks and ETFs I will be discussing are good options to own regardless of what happens with the Coronavirus outbreak.)
When the major markets turn negative and investors pull out of 'growth' stocks, the first 'safe haven' they run to are bonds. However, we have already seen bond prices jump and interest rates plummet as this trade has become very crowded. One reason they do this is that they are looking to 'protect' their investable capital but also still wanting some sort of yield, even if it's minimal. Even a 1.2% Treasury yield is better than a savings account or, worse, losing 5% in stocks.
So, once the bond trade gets warn out, investors then move into dividend-paying stocks. Ideally, dividend-paying stocks that have a proven track record of paying their dividends even when economic times get tough. This elite group of stocks is called the Dividend Aristocrats and they have not only been paying a dividend for long periods of time but they have consistently increased their dividend amount each and every year for a very long time, at least 25 years to be exact. These stocks are such companies as AT&T, Exxon Mobile, Walgreens, and Coca-Cola, to name a few of the currently 64 companies that hold that title.
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Now since the Coronavirus is a health concern, investing in the industry that is likely to see increased business seems like a logical move. Healthcare providers, pharmaceutical companies, healthcare equipment manufacturers, and even drug stores, to an extent, could all see increase sales if the virus continues to worsen. Johnson & Johnson, Pfizer, Biogen, Anthem, and CVS Corp. could all see significant boosts, just to name a few.
Another industry that some believe will rise if the coronavirus causes issues with everyday life in the US, such as potential government-induced quarantines or even just widespread corporations asking employees to work remotely, would be internet technology firms. More teleconferences, more web browsing, more online shopping, even more, cybersecurity could all be repercussions from officials attempting to slow the spread of the disease. Firms like Zoom Communications, Salesforce, Cisco Systems, CrowdStrike, Shopify, and even Amazon.com could see higher revenue.
Finally, similar to the move to the dividend aristocrats, investors will look at businesses that have a track record of stable earnings regardless of the economic situations. One of the most stable, if not the most stable industries we can find is the utility industry. No matter how bad things get, people will still need water and power. Dominion Energy, Duke Energy, American Electric Power, and the Southern Company are just a few to consider.
Some of the ETFs that you could look into buying, which would give you exposure to these industries and stocks will be the ProShares S&P MidCap 400 Dividend Aristocrats ETF (REGL) and the ProShares S&P 500 Dividend Aristocrats ETF (NOBL) if dividends are of interest to you. The Health Care Select Sector SPDR Fund (XLV) and the iShares US Healthcare ETF (IYH) if you want to play the healthcare angle. The Communication Services Select Sector SPDR ETF (XLC), the Vanguard Information Technology ETF (VGT) and the First Trust Dow Jones Internet Index Fund (FDN) are all good if you think we may be headed towards the quarantine route. And finally, the Utilities Select Sector SPDR Fund (XLU) and the Vanguard Utilities ETF (VPU) are both decent options if you are looking at playing it very safe and jumping into the utility realm.
Remember, fear and panic aren't suitable for anyone in these types of situations. So, don't spend your time panicking and worrying about what could happen, spend your time preparing for what you will do if it comes to that point. And as I mentioned before, all of the sectors I mentioned above would be great areas to have exposure to regardless of what happens with the Coronavirus outbreak. Some may just perform better than others in times of bull markets.
Matt Thalman
INO.com Contributor - ETFs
Follow me on Twitter @mthalman5513
Disclosure: This contributor did not hold a position in any investment mentioned above at the time this blog post was published. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.
