Obviously, the coronavirus from China has devastated virtually all publicly traded companies. But for credit-card giant Mastercard (NYSE:MA), the outbreak came at a truly awkward time. Just as the virus was lurching forward to becoming a pandemic, Mastercard announced a change at the top. Is the executive changeup enough to shift the narrative for MA stock?
In the near term, no. As I’ll discuss in greater detail below, the coronavirus is spiraling out of control. One of the biggest takeaways is that international health officials failed the first battle: keeping the coronavirus contained in China. With the outbreak having rippled through 56 countries and one international conveyance — the Diamond Princess cruise liner — things are bad and will get worse.
On a basic level then, the crisis — a black swan event, really — should negatively affect MA stock. Like other financial institutions, such as JPMorgan Chase (NYSE:JPM) or Goldman Sachs (NYSE:GS), Mastercard is a bellwether stock. Essentially, these stocks are a real-time indicator of true consumer sentiment. Because of this, volatility in the share price doesn’t bode well for the broader markets.
Before you get any ideas about playing the contrarian on MA stock, consider the hard facts. On February 25, Mastercard shares dropped 6.7% against the prior session. That places it among the worst single-day performances in Mastercard history (coming in at the 22nd worst day, to be exact).
Further, on February 27, MA stock dropped 17% over a five-day period. That’s the fourth-worst five-day span in the equity’s history. And with pessimistic news continuing to trickle in, we could realistically be staring down the barrel of a dubious new record.
So, should you be worried about Mastercard? Only if you have substantial funds levered to the markets.
Coronavirus Is a Potential Timebomb for MA Stock
I realize that there are still many analysts urging people to take the coronavirus into perspective. Honestly, I marvel at their boldness in light of growing evidence that this outbreak has no true modern parallel.
Yes, when you chart the cumulative number of coronavirus cases on a logarithmic scale, it certainly appears that the outbreak is fading. But I believe that such charts are deceptive because they’re levered mostly to China cases. However, in other parts of the world, the virus is just hitting its stride.
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On February 16, the daily growth rate of China cases measured 3%. By February 27, the rate had dropped to 0.42%. Hence, the slowing in overall coronavirus cases. However, during the same time period, the growth rate of cases outside China skyrocketed to 28.7% from a more manageable 12%.
From another angle, non-China cases represented just under 1.1% on Feb. 16. Fast forward to Feb. 27, these cases now represent nearly 5.2%. In other words, after the coronavirus first strikes a country, we should expect a rapid, exponential deterioration.
This might seem like fear-mongering, but I assure you there’s no hyperbole. In Italy, one person sparked a domino effect that has so far infected 655 people and killed 17. From what I understand, Italian authorities have still not found “patient zero,” their nation’s first carrier of the disease. The crisis erupted in a matter of days.
Or consider South Korea. What was once a marginally impacted country now has over 2,000 cases. To put this into perspective, the figure is more than the combined totals for Japan and the Diamond Princess cruise liner.
Thus, the risk isn’t about overstating the impact of the coronavirus. Instead, I think one loses credibility if they don’t take this outbreak seriously enough. And with such devastation across the globe, the big picture isn’t conducive for MA stock.
So When Should You Buy Into Mastercard?
Over the long run, I believe shares of Mastercard will present a buying opportunity. However, I don’t think that opportunity is now, as investors realize this outbreak is here to stay for awhile longer than most anticipated. To recap earlier points, I’m hesitant for these reasons:
- The five-day loss of 17% is incredibly worrying; the last time we saw such scale was only during the 2008 financial meltdown. Keep in mind that Mastercard’s all-time record for a five-day loss is 19.5%, set on Jan. 20, 2009. These numbers do not inspire confidence
- The rate of coronavirus transmission is escalating across the globe at an uncomfortably quick pace. With an implied (though simplistic) fatality rate of over 3%, the virus has the potential to kill millions if it spreads as fast as the common flu.
- We’ve already witnessed three crises — the Diamond Princess, South Korea and Italy — balloon from one case to hundreds (or even thousands) in a matter of days, so it’s fair to assume that circumstances will worsen before they get better.
Here’s my play for investors deadset on MA stock: first and foremost, protect yourself and your family. Next, wait out the markets for a few weeks. I’m almost certain the discount today isn’t the floor for Mastercard.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.
