Carnage may be the best word to describe the market this week.
This week saw the end of the 11-year bull market as the Dow closed in bear market territory on Wednesday, and the S&P 500 officially closing in a bear market on Thursday after having fallen more than 26% from its record high set less than a month ago.
Trading was halted by circuit breakers on both Monday and Thursday as stocks plummeted in the minutes just after the open as investors fled risk assets amid coronavirus fears and a new oil price war between Saudi Arabia and Russia.
But even as the market seems to be in free-fall, Mizuho Securities analyst James Lee says investors may want to consider scooping up shares of some of the leading internet companies as they fall.
All five of these stocks are down significantly over the last month with Amazon down -22.4%, Baidu down -28%, Facebook down -26.7%, Uber down -45%, and Trip.com Group down -24.5%, giving a buying opportunity for brave investors.
“As coronavirus continues to spread globally, we are seeing a meaningful selloff in the U.S. and China internet space,” Lee wrote. “Clearly, online travel is getting hit the most, down nearly 30% over the last two weeks, followed by advertising at 20% and e-commerce at nearly 10%. We believe the impact is transitory, but it’s hard to time the bottom given the uncertainty of an unknown epidemic.”
Lee argues that investors should buy those stocks that either showed strong underlying business trends in the fourth quarter, or those that are positioned to benefit from the emergence of travel restrictions, more people working from home, and a preference among consumers for staying at home amid the coronavirus outbreak.
For Amazon, Lee said that the e-commerce giant could see a boost from increased demand for health care, grocery, and consumer packaged goods, noting that “e-commerce adoption will likely increase, as consumers will likely opt to purchase online more often as opposed to shopping in stores, especially in the highly infected markets.”
Facebook on the other hand could see a benefit from people being bored at home. Lee wrote, “increased demand for games, entertainment and e-commerce could benefit Facebook’s ad business.”
While investors fled U.S.-listed Chinese companies last month as the deadly coronavirus spread rapidly in China, effectively shutting the country’s economy down for a few weeks. Still, Lee likes Baidu given that its engagement was strong when the outbreak took hold of China, particularly for maps, medical searches, and Q&A with doctors.
Lee also believes Baidu’s stock is undervalued, and noted that “post-coronavirus potential catalysts include easing competitive pressures and margin expansion.”
As for Uber, Lee argues that the stock is oversold after its -45% plunge, “and estimate airport-related trips could impact EBITDA by only 10% and increased demand in food delivery could reduce promotions and thus lower EBITDA losses.”
Finally, while Lee kept a Buy rating on Trip.com Group shares, he did lower his price target for the stock to $35 from $40.
‘We expect online travel to recover more slowly than e-commerce and advertising by one quarter, and anticipate a full recovery in Q1 2021,” Lee wrote in the note. “Although we are cutting estimates, we continue to believe the impact is short-term, not structural, and the company remains a best-in-class travel play with easing competition in domestic China and limited competition for outbound travel.”