It’s a scary time for investors.
In just the past two weeks, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite have all tumbled more than 10%. Even a surprise 50-basis-point interest rate cut from the U.S. Federal Reserve did not do much to lift investor sentiment.
But instead of bailing on stocks, consider that this downturn could be the best opportunity for tech investors in years.
You see, the biggest reason behind the latest market sell-off is the coronavirus outbreak. First emerged late last year in Wuhan, China, the COVID-19 disease has killed more than 3,400 people and is now in over 90 countries. As of March 6, more than 100,000 people have been infected globally. (Source: “Coronavirus Cases Exceed 100,000 as Countries Struggle to Contain Spread,” The Wall Street Journal, March 6, 2020.)
There’s no denying that the economic impact from the coronavirus will be huge. Even though most of the cases are in China, the fear has spread across the United States: hotels are empty, airlines are cutting flights (because fewer people are travelling), and even restaurants are seeing substantial declines in their business. There is a good reason for investors to be worried.
But when it comes to tech stocks, the impact from the coronavirus might not be as bad as the bears had thought.
Think about Alphabet Inc (NASDAQ:GOOG), the parent company of Google—the most dominant search engine in the world.
Like most stocks, GOOG stock has been hit hard from the market crash, but the company actually stands to thrive. In the event of a big coronavirus outbreak, more people will use Google to search for information. And when people are staying at home due to fear of catching the virus, they’ll probably kill time by watching “YouTube” videos—and YouTube is owned by Google.
Speaking of video streaming, we can’t leave out Netflix Inc (NASDAQ:NFLX). The company already has more than 167 million paying subscribers globally, and that number should still be growing even when the overall economy slows down as a result of the coronavirus. If schools and businesses are closed due to an outbreak, more people will likely sign up for Netflix to binge watch their favorite shows at home.
And when people are trapped at home, they will still want to connect with their families and friends.
That’s when services offered by Facebook, Inc. (NASDAQ:FB) could come to the rescue. I wouldn’t be surprised to see the company’s social media platforms “Facebook” and “Instagram” and cross-platform messaging app “WhatsApp” getting increased usage in the event of a widespread coronavirus outbreak.
Amazon.com, Inc. (NASDAQ:AMZN) is another company that could prosper in today’s environment. Think about it: because of the fear of getting the virus, consumers are not going to the mall as often as before. This means, when they do need to buy stuff, they’ll have to order it online.
Amazon runs the largest e-commerce platform in most parts of the world, and it even delivers fresh groceries in select cities. When the malls are empty, Amazon’s business could get a solid boost.
A few weeks ago, many analysts were saying tech stocks were too expensive. With the recent market sell-off, tech stocks have come down quite a bit in price. Looking at the companies I just mentioned, we see that, over the past two weeks, Google stock plunged 14%, Facebook stock tumbled 15%, Netflix stock slipped five percent, and Amazon stock went down 10%.
But these companies are actually positioned to run solid businesses even if the coronavirus reaches pandemic levels. At the same time, America’s tech giants are also known for having huge piles of cash, which should provide them with financial wiggle room.
Quality items seldom go on sale. For investors who believe in the fundamentals of these companies but thought their shares were too expensive before, the recent sell-off allows them to purchase their favorite tech stocks at a sizable discount.
On a side note, many tech investors have also been interested in the legal cannabis sector, which is known for delivering double- and sometimes triple-digit growth rates.
Pot stocks are also experiencing a sell-off at the moment, but just like tech stocks, the situation might not be as bad as some had thought. Marijuana users will likely keep using pot products even when they are trapped at home. In fact, when people can’t go out, they might consume more pot than before, and they have online delivery available.
Bottom line: no matter how the coronavirus outbreak ends, the world economy will take a serious hit.
But for growth investors, the market pullback could represent an opportunity to pick up some solid tech stocks on the cheap.