Tuesday, February 04, 2020
As panic grows about the coronavirus, China’s stock market started the week by plunging nearly 10%.
That’s its worst opening in 13 years.
For the sake of everyone’s health, we’re sincerely hoping for the best.
But as this relates to your finances, history proves that events like this can be buying opportunities.
And as you’re about to learn, two specific stocks should be at the top of your shopping list…
Buy The Dip
Research proves that the best buying opportunities during pandemics present themselves when the World Health Organization (WHO) declares a global emergency.
And the WHO did just that five days ago.
“Health emergency announcements are usually a lagging indicator,” said Ned Davis Research Group’s Alejandra Grindal. “On average, the bad news has [already] been priced into the market…”
In other words, there’s likely nothing but upside from here. And according to the below chart, the upside for the year ahead could reach as high as 20%.
Of course, that figure merely represents the average for the overall market...
Individual stocks could rally many multiples higher — especially technology stocks.
Always Bet on Tech…
In last week’s column, I showed you why tech stocks belong in every portfolio right now:
Essentially, given the tech-dominated world we live in, technology promises to be the epicenter of growth for the foreseeable future.
And the biggest returns will come from the fastest-growing sectors — for example, semiconductors.
For the last 20 years, unit sales for semiconductors have grown nearly uninterrupted. Currently, over 1 trillion chips are sold each year.
Even more impressive, according to data from the World Semiconductor Trade Statistics organization (WSTS), there’ve only been two time periods when annual units sold decreased:
From 2000 to 2001 (the Dotcom Bubble), and from 2007 to 2009 (the Great Recession).
In other words, the only downturns came when there was demand destruction across all sectors.
Now’s the Time To Bet on Semis
Furthermore, demand for semiconductors has never been stronger.
First of all, there’s an acute need for more chips simply to power today’s existing devices.
But without semiconductors, the most important tech innovations of the future literally can’t happen. I’m talking about major trends like:
Because of these trends, annual semiconductor unit sales are soon expected to approach two trillion.
And that’s where the coronavirus scare comes back into the picture…
A Pullback for Chip Stocks
China is an important production center for chips.
So it’s no surprise that chips stocks have pulled back on fears about the coronavirus. In the last 10 days, for example, the Philadelphia Semiconductor Index (^SOX) is down almost 10%.
But because of the intense demand for chips, any pause here promises to be short-lived. The overall trend here is up — the SOX index is up roughly 200% in the last five years — and it’s only going higher.
Given this scenario, two chip-related companies are bargains right now…
Two Stocks To Buy Right Now on Coronavirus Fears
The first is Lam Research Corporation (LRCX). Lam makes machines that produce semiconductors. Its machines etch circuits onto silicon, deposit vital conducting materials, or clean finished chips.
As chips get more complex, we expect sales growth for this company to be strong. As a “bonus,” it currently trades at 15x forward earnings, which is very reasonable.
The second is Taiwan Semiconductor Manufacturing Company Limited (TSM). This is the largest and most advanced producer of chips in the world. Every big tech company including Apple relies on it.
If chips are going to dominate the next decade, so is TSM. Furthermore, it’s currently trading for just 16x forward earnings.
Big Profit Opportunity
Because of coronavirus fears, these two semiconductor companies are currently “cheap”…
But we believe they’re poised for heady growth in the future.
For investors like us, this sort of opportunity could translate into big profits.
Ahead of the tape,
Ahead of the tape,