Table of Contents:
Where Investors Should Not Seek Refuge From Corona-Volatility
1. Alternative Energy Stocks
The alternative energy sector got slammed last week as the overall market took a deep dive on fears of the coronavirus spreading. In the alternative energy space, we saw major players in both solar manufacturing and renewable development tank in price.
For example, SolarEdge Technologies is one of the biggest solar manufacturers and their stock dropped nearly 22% last week. And Hannon Armstrong, a large renewable developer, dropped close to 28% last week.
Despite a brief upswing on Friday afternoon, the market still finished down for the week–the Dow was down over 10% for the week. That said, it’s no surprise that an industry like alternative energy got beat up.
Using logic, people aren’t going to be taking on commercial or residential solar or alternative energy projects in large-scale during a recession. This is an area, however, that you should watch closely and see if there’s a good time to buy in the next three to six months. I have a feeling this sector will rebound, though it could take a couple of years.
2. Cosmetics Stocks
The coronavirus isn’t just impacting people’s lives, but it’s also hitting companies hard that do business in China, including cosmetics companies. Cosmetics companies tend to either operate or source goods from China, and they continue to be seriously impacted by the virus.
Not only are many cosmetics companies closing their stores right now, but people are staying indoors–meaning they might not find a need for makeup and other cosmetics as often. In addition, cosmetics companies rely heavily on international travel for sales, and that’s also been hindered due to the virus.
Estee Lauder is one of the biggest players in the cosmetics space, with a market cap of nearly $62 billion. So they’re a fair indicator of how the overall sector is performing. Year-to-date, the stock is down close to 17%. And just last week, it dropped by over 10%. To reference a couple of other major players in the cosmetics industry, Nu Skin (market cap of $1 billion) was down close to 22% last week, while Inter Parfums (market cap of $1.6 billion) was down 10%.
It’s safe to say that cosmetics stocks are not where you should be putting your money right now. These are three strong companies and are leading indicators on how the overall sector is performing, but the coronavirus is having a significant impact on the way these firms generate revenue.
If you’re dead-set on cosmetics, I would at least wait until some travel bans are lifted, or until we start seeing people come out of their homes a little more. If you own cosmetics stocks, don’t sell them, just ride this out. I’m just not sure I’d be putting new money into these stocks right now.
The overall real estate market got pounded last week with increasing concerns of COVID-19. While it didn’t get hit as hard as the rest of the stock market, it remains a volatile sector and should be looked at with caution right now.
Remember that REITs can come in different flavors–commercial and residential. Commercial REITs are probably the most touchy right now since they include things like skilled nursing facilities, senior housing, hotels, malls, business buildings, and other types of facilities that are seeing fluctuations due to the spread of the coronavirus.
Last week, the overall S&P real estate market finished down almost 16%. Yields for lodging as well as resort REITs are now down 53% since the beginning of 2020, rendering it the worst-performing industry by a substantial margin, according to the most recent information assembled by Nareit.
Personally, I’m not huge on REITs, to begin with, but if you are, I suggest riding this one out, too. Once the market corrects itself (which could be a couple of years) you’ll start to see these stocks come back up. It’s not like hotels are going anywhere. People just aren’t traveling right now.
Bitcoin plunged below $4,000 in the last week, suggesting that cryptocurrencies are not unsusceptible to the impact of standard financial markets. As fears increased regarding the possible financial damages resulting from the break out of the coronavirus, several of the most popular types of digital money plummeted. The price of Bitcoin, for example, dropped by nearly 40% over the course of last week.
Various other types of cryptocurrency really felt the impact, too. Ethereum (-46%), Ripple (-35%), as well as Litecoin (-41%) also experiencing remarkable downturns. In spite of cryptocurrencies commonly working against the grain of the conventional monetary system (partially since they run without the requirement for financial institutions), some show up equally as vulnerable to securities market changes.
Right now, I would steer clear of crypto. It’s incredibly vulnerable even in a bull market, so I wouldn’t take any chances on it now. And since it’s not tied to any physical material, like gold which is physically mined, it’s hard to tie it to a supply and demand.
5. Big Pharma Stocks
You might be saying that this one doesn’t make sense, but hear me out. Yes, big pharma stocks could be in for a huge upswing, especially as many big companies are creating and ultimately testing vaccines, but there’s a huge amount of risk here and I would recommend holding off on buying into big pharma right now.
Despite this encouraging information from biotech, experts are warning that it can be years before a vaccine or treatment solution actually comes to market for Covid-19. Even if it does come quicker, its manufacturer will more than likely experience difficulties in sharing the medicine to a substantial chunk of the population and keep up with the demand. Experts are also doubting that it would pay off for the companies involved.
That being said, it’s worth keeping an eye on this sector as more and more vaccines are tested. Just be mindful that the market is reacting to news that may or may not be a be-all, end-all solution. For instance, Moderna’s stock skyrocketed nearly 100% from Monday to Thursday last week after the biotech firm stated it sent out the very first batch of its vaccination to U.S. federal government researchers. The stock took a hit late Thursday and dropped a bit more on Friday.
This is just an example of how volatile the sector is right now. So to summarize, I’d say don’t buy-in right now but watch closely.
What to Do Instead
Instead of rolling the dice with these industries right now, look for low-cost ETFs and index funds. Don’t be fooled by the comments above–now is a great time to invest since the market is taking a beating. Just be prepared to see a bit more of a loss.
But a great time to buy is only half the battle. In order to maximize your returns, you should be using a broker that offers you a ton of value. There are three I love right now during this coronavirus crisis:
E*TRADE is hands-down one of the best investing platforms you can find. Not only is their platform incredibly robust with tons of research options, but you can trade stocks for free and ETFs for as little as $4.95.
TD Ameritrade is similar, though I don’t love their platform quite as much. While they offer a ton of resources for researching, it’s a bit harder to find than on E*TRADE’s platform. That said, their pricing is on-point and their customer service is excellent.
Finally, Ally Invest is a bit newer to the game. What they lack in robust research features, they more than makeup for in cost. It’s free to trade if you choose the self-guided option, but you can also choose a guided option (that acts more like a robo-advisor) and select one of four different portfolio types. It’s cheap and easy to quickly invest.
Right now is a great time to invest, but only if you’re putting your money into things that aren’t super volatile. The above options are higher-risk (albeit, long-term higher reward) and probably not worth it at this point in time.
I’d stick to ETFs, low-cost index funds, or even CDs right now until we know more about how the coronavirus will spread, how it will impact the market, and what (if any) vaccines will become available.
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