I reckon COVID-19 coronavirus is driving the financial markets right now. And there’s plenty of logic in share prices falling. In short, I think the stock market is being rational because the virus looks set to inflict real economic damage to the businesses behind many shares.
Only today, for example, I reported on shipping services provider Clarkson. The chief executive said in today’s full-year results report that the outbreak will “impact” the firm’s first-half performance in 2020.
But as so often happens, at times the sell-off is indiscriminate. So now could be a good time to start seeking out those stocks representing businesses that are less susceptible to economic damage inflicted by the virus. Here are two shares I’m watching closely.
Power transmission
Clarkson has a high degree of cyclicality in its operations but the business of National Grid (LSE: NG) is potentially much steadier. The firm runs the big pipes and power cables that move electricity and gas up, down, and across the UK. It also has a regulated power business in the US.
We haven’t had any commentary from the company since the virus outbreak emerged, but my guess is it will have little effect on trading. Unless we see the mass shut-down of industrial facilities and the like, power consumption will likely remain stable. Even those individuals self-isolating will likely still use energy, I reckon.
Yet the share price is showing weakness, and it could be a good time to research the stock. The recent 977p throws up a forward-looking earnings multiple around 16 for the trading year to March 2021 and the anticipated dividend yield is just above 5%.
Medical devices
On 20 February, Smith & Nephew’s (LSE: SN) chief executive said in the full-year report that revenue grew by 4.4% during 2019 and trading had been robust across the business.
The company operates in a market with steady demand. But it is feasible that orders for its joint implants and other medical hardware could ease off a bit in the short term if the NHS starts delaying non-essential operations because of the COVID-19 outbreak.
The shares are about 21% down since the day of the full-year results report (and falling), even though the outlook statement was positive. However, the directors did say the outlook “assumes the situation regarding the COVID-19 outbreak normalises early in Q2.”
But at the recent share price of 1,570p, the forward-looking earnings multiple at the moment is just over 17 for 2021 and the anticipated dividend yield is just over 2%. That’s still not cheap, but Smith & Nephew has been expensive for as long as I can remember, probably because of the quality of the underlying business.
I’ve had my eye on this stock for ages and sense an opportunity could be developing, so I’m watching it closely now.