Be Greedy When Others Are Fearful

Global coronavirus cases just broke the 100,000 mark, and the Dow has broken down to its lowest level since the beginning of June as the market reels in fear. The markets are in panic mode, but that doesn’t mean that we should be. Economy data is still robust, with February’s unemployment rate maintaining its half-century low of 3.5% and 273,000 new jobs entering the market. Fear is dictating the market’s actions, and investors are rapidly evacuating the equity market, flying to “safer” assets like gold and treasury bonds. This could be the perfect time to start buying your favorite stocks at a discount.

From the famous words of one of the most esteemed investors in history, Warren Buffett, to be a successful investor, “simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”

I like the cloud space right now, as these companies will likely be able to stay above the most substantial impacts of this new pathogen. What the markets are most concerned about is the supply shock that China’s manufacturing shutdowns have caused. This supply shock is expected to extend as global supply chains begin to shut down with the coronavirus spreading. Demand for physical goods & services is also going to be a concern if people start shutting themselves off from the outside.

Cloud-based companies will not have the lasting impacts that physical inventory companies will experience. With people working increasingly remotely in the wake of this novel virus, cloud computing may become increasingly essential.

I am not advocating to put all your money in the market right now, but below I offer a few suggestions for healthy cloud-based stocks with a bright future to keep an eye on.

My Cloud Picks

Adobe (ADBE) has very successfully transitioned to the tech world’s golden business model, subscription-driven reoccurring-revenue. Adobe is the unmistakable leader in digital media design and marketing analytics. The company has and will continue to be the innovative frontrunner in its field with an unmatchable product offering. Adobe has become a necessity in the creative arena, as well as marketing.

This firm has driven exceptionally consistent topline growth of more than 20% annually for over 4 years, with rapidly expanding margins. ADBE is now trading at the lowest end of its 5-year forward P/E multiple range and is looking ripe for a buy. The coronavirus has provided investors who missed out on this stock’s rally a second chance to get in.

HubSpot (HUBS) is a leader in cloud-based enterprise software for SMBs, providing functionality in sales, market, and service management. The company offers a similar business model to Salesforce, but HubSpot is focused on small growing businesses. The platform is more affordable and easier to implement than the complicated Salesforce system, which requires a professional to set up.

HUBS has proven its ability to demonstrate consistent topline growth while successfully expanding margins with scale. This is a young enterprise but has already acquired more than 73,400 customers in over 120 different countries.

HUBS is roughly 20% of its highs and may see a larger downside if the markets continue to fall. This company's recent trend towards profitability makes the stock more volatile in an already fear infected market. Keep an eye on this stock but wait for the markets to settle down before putting on a position.

Alibaba (BABA) is not a pureplay cloud-player but controls the cloud market in the most populous country in the world, China. Considering the coronavirus’s impacts on China, I am surprised how resilient BABA has stayed thus far. Alibaba’s immunity comes from the online nature of the business and its strong long-term potential.

Many of China’s residence are staying home to avoid the spread of the virus and are using the internet more than ever. This has its benefits for Alibaba and its many online-based subsidiaries. This is not to say that this pathogen won’t negatively impact the company, but that its impact may be less severe than its domestic cohorts.

When compared to its largest competitor Amazon, Alibaba exhibits not only wider margins, and stronger profitability, but also a more robust growth outlook. Yet BABA is valued at almost half the market capitalization as AMZN. The enterprise controls both the ecommerce and cloud space in the most populous country in the world. There is an enormous amount of potential for these shares moving forward.

Take Away

I am not a heavy buyer right now as the impacts of the global pathogen are only beginning to be priced in, but I have been buying small positions in resilient stocks like BABA and averaging down as the market continues to break.

The markets are being driven by short-term fear, while the long-term economic outlook still appears to be positive. The coronavirus has given investors a precious opportunity to rewind the market an get in on missed opportunities. The markets are beginning to look like a clearance sale, and you don’t want to miss out on this big break.

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