Story Highlights:
- The coronavirus is spreading faster than the SARS outbreak in 2003.
- Markets are falling on fear of a global slowdown. But quick action from world leaders is helping to contain the virus.
- Matt Badiali shares a contrarian strategy for buying great stocks at discounted prices.
Make no mistake, the Wuhan coronavirus is a big issue. The World Health Organization called it a global crisis.
But as fear grips the world, overreactions happen. Like the 6,000 passengers trapped on a cruise ship outside Rome, Italy.
They weren’t allowed off because a Chinese passenger was ill. She flew in from Hong Kong and began running a fever. The mayor of the port town asked civil authorities to keep everyone on board until she’d been tested.
This kind of overreaction is common when faced with an emotional problem. Here’s what I mean.
There are more than 7.4 million people in Hong Kong. There are 12 cases of the coronavirus there so far. The odds of this woman having the virus are vanishingly small … but the Italian government thought it was worth holding all those people on that ship over it.
That kind of reaction is mirrored in the stock market. Investors, fearing the worst, sell. And that creates opportunities for contrarian investors.
Quick Response Will Dampen Impact
As investors, we have the chance to use this fear as a buying opportunity. Allow me to put this outbreak in perspective.
Total confirmed cases hit 7,783 on Thursday, January 30. The SARS virus infected 8,098 people in eight months. The coronavirus is nearly at that total in just two months.
The coronavirus is a pandemic, with cases in 20 countries so far.
It is far more contagious than SARS, but not nearly as deadly.
Which is good news.
The world is reacting to contain the virus, using lessons learned from the SARS outbreak.
Hong Kong cut off high-speed rail and ferry service to mainland China.
Lufthansa, the German airline, canceled all its flights to and from China. So did British Airways. United Airlines and American Airlines both reduced flights to the country.
China has an official lockdown on 50 million people. This has huge implications for the global financial market. If no one can work, then no “stuff” will be made.
Commodities Succumb to Fear
That hit commodities particularly hard. Oil prices plunged. The Dow Jones Industrial Average fell 2%. And base metals’ prices plummeted. Just look at this chart of copper:
Copper Price Has Fallen 10% in 3 Weeks
The copper price has fallen 10% from its January 14 high. And it shows few signs of a bottom.
Large mining companies with exposure to copper and base metals followed that trend lower. Here’s a quick recap:
- Freeport McMoRan Inc. (NYSE: FCX): down 7%.
- Turquoise Hill Resources Ltd. (NYSE: TRQ): down 16%.
- Southern Copper Corp. (NYSE: SCCO): down 14%.
- Rio Tinto PLC (NYSE: RIO): down 10%.
- BHP Group Ltd. (NYSE: BHP): down 8%.
These stocks are moving steadily lower in the face of the virus outbreak. They will find a bottom once the virus is contained. And then they will rocket higher as the world returns to normal.
In Real Wealth Strategist, we’re going to use the coronavirus outbreak as a buying opportunity. This is short term. But steep declines give us a perfect window to buy stocks we like at a discount.
The SARS virus took eight months to run its course. It made headlines in February 2003.
The copper price plunged 12% on the same fears we see today. It bottomed three months later in April, and went on to close the year up 48%.
We can’t expect the exact same time line. However, the setup is similar. And the results should be too.
Find a handful of stocks you want to own. Watch them fall. Buy them when they begin to rise again. Don’t try and pick the bottom, but you will make double-digit gains on the recovery.
Does the coronavirus outbreak affect your outlook on commodities? Let me know by taking my Twitter poll:
The Corona Virus is hammering base metals like copper. How do you view them now?
— Matt Badiali (@MattBadialiGuru) January 30, 2020
You can also write to us at winninginvestor@banyanhill.com.
Good investing,
Editor, Real Wealth Strategist
P.S. In my Real Wealth Strategist newsletter, our focus is on three investment goals: cyclical natural resources, cannabis and income. We’ve profited from all three, locking in gains of 112%, 149%, 64% and 99%. Click here to learn more!