The coronavirus crisis is in full swing globally. How to value stocks in this environment?
Basically, cyclical stocks deserve a steep valuation discount. Cyclical stocks are stocks from industries such as base metals mining, industrials, transportation and technology. Such stocks should be very cheap in the current environment measured by Price/Earnings ratios.
Stocks from industries such as healthcare, utilities and consumer staples should be rewarded with higher Price/Earnings ratios.
The current environment is uniquely stressful. Many companies will actually not survive. The ones that will survive and perform best in this market environment are companies that have strong balance sheets. That is, low debt and a lot of liquid assets.
What is more, companies with a product that is characterized by strong demand will also perform well in this environment.
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Petar
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Petar Posledovich
Hi,
ReplyDeleteI believe there is a lot in the cycle and complex theory and the virus was only the catalyst, but not the root cause of the current stock market meltdown. There is too much debt in the system, too much derivatives and too much capital misallocation.
Undoubtedly we are in a debt deflationary environment and cash is king. Until is not, but it depends on the response of the central banks.
I am not giving any advice, but I believe stock market will fall again, we have not seen the bottom yet.
Regards,
Yes, there are/were many bubbles. Developed fixed income, technology stocks, stocks in general, high yield bonds.
ReplyDeleteBut the coronavirus is a real shock, not only a trigger. The coronavirus shock has the potential to severely disrupt economic activity if it lasts. Which will affect stocks and bonds valuations.
I cannot hear the music.
ReplyDelete