Thanks to the coronavirus, financial markets are coming off their worst week since the Financial Crisis, with major indices in the U.S. stock market shedding about 12% in five days. That’s a pretty bad showing. And yet, investors don’t seem to be throwing in the towel. Instead, search volume for the term “stocks to buy” in the United States has soared during the sell-off.
That may seem counter-intuitive, but I think it makes total sense. Investors should be looking for stocks to buy on coronavirus weakness.
While big, scary, and volatile, the coronavirus — like every other epidemic before it over the past fifty years — is temporary. Come this spring, warmer weather coupled with strict quarantining, swift government response, high consumer awareness, and broader distribution of potential treatments and vaccines will ultimately put the outbreak to bed. At that point in time, things across the globe will get back to normal.
For tech stocks, “normal” is a good thing.
In a very relevant note over the weekend, Wedbush said:
Our long standing view during this last decade… is that we are in the midst of a unprecedented tech bull market with themes such as the enterprise move to cloud computing, a transformational 5G super cycle, EV auto demand inflection, streaming cord cutting paradigm shift, and cyber security… does coronavirus massively disrupt/erase [those] long-term transformational bullish trends…? The answer in our opinion is a resounding NO.
I couldn’t agree more. The themes underpinning tech stocks remain robust, and a global coronavirus outbreak won’t disrupt these themes for much more than a few months.
Buy the dip in tech stocks. Which ones? Let’s take a close look at what Wedbush calls the 10 best tech stocks to buy on coronavirus weakness.
What Wedbush Says: In a nutshell, Wedbush believes that the headwinds at Microsoft (NASDAQ:MSFT) are temporary. The coronavirus-related supply chain disruption in China hitting the company’s PC business won’t last forever, while the tailwinds are more enduring, such as the secular enterprise shift from on-premise to cloud computing. Wedbush expects supply chain disruption headwinds to eventually fade, and cloud computing tailwinds to remain vigorous for the next five-plus years. That combination ultimately makes Microsoft stock look like a compelling buy on recent weakness.
What I Think: I couldn’t agree more with Wedbush here. Come this time next year, no one will be talking about coronavirus, but everyone will still be talking about Microsoft’s red-hot cloud business. So buying the dip make sense. It also helps that the valuation has become much more tangible after the recent sell-off (28-times forward earnings today, versus 32-times before the sell-off). I’d take nibbles every time the stock drops from here, keeping in mind that patience is your best friend when buying the dip.
What Wedbush Says: Once its supply chain in China comes back online in full capacity, Apple (NASDAQ:AAPL) will start selling a lot of iPhones again. Wedbush expects this to happen by late April or early May, well before the launch of the headline 5G iPhone in the fall. Long story short, then, Apple is getting stung by timing issues that won’t hang around much longer. Once they go away, Apple stock should bounce back.
What I Think: Again, I couldn’t agree with Wedbush more. Come April or May, the coronavirus outbreak will be put to bed, and Apple’s supply chain will be back to operating at full capacity. Come fall, consumers will have completely forgotten about coronavirus, and they will be out buying the new 5G iPhone in bulk. When Apple sells a lot of iPhones, Apple stock tends to work very well. I don’t see any reason that won’t be the case in the second half of 2020.
What Wedbush Says: Wedbush believes three things on Tesla (NASDAQ:TSLA). One, Tesla remains the unchallenged leader in the EV space. Two, EV demand trends remain robust, ignoring near-term coronavirus-related weakness. Three, Tesla will sell a bunch of EVs in China and across the globe over the next five years, and all the coronavirus is doing is delaying that growth narrative by a few months. Against that backdrop, Wedbush believes Tesla is strong tech stock to own during the sell-off.
What I Think: Yet again, I agree fully with Wedbush. I’d just like to add two cents on valuation. Prior to the coronavirus sell-off, Tesla stock had jumped to levels that, quite frankly, were based on euphoria and not fundamentals. However, the sell-off has brought shares down to more realistic, tangible valuation levels. Below $700, the stock looks particularly attractive from a valuation perspective. As such, now feels like a good time to start buying the dip in TSLA.
What Wedbush Says: According to Wedbush, Adobe (NASDAQ:ADBE) “represents a company leading the digital transformation among both consumers and enterprises over the coming years” with negligible impact from the coronavirus outbreak. In other words, you have a long-term winner with very small near-term headwinds. Wedbush is saying that if Adobe stock drops on largely unrelated coronavirus concerns, buy the dip.
What I Think: Surprise, surprise. I agree with Wedbush yet again here. Adobe is a very, very good company, which is a pure play on digitization and cloud transformation trends on both the enterprise and consumer fronts. These trends remain robust today, and will remain robust for the next five-plus years. Adobe will continue to grow revenues at a double-digit pace, maintain a super strong gross margin profile, and produce huge profits and cash flows. Coronavirus concerns are largely irrelevant to that healthy long-term growth narrative, so take advantage of any near-term weakness in shares on coronavirus fears.
What Wedbush Says: The coronavirus impact on ZScaler (NASDAQ:ZS) will be small and short-lived, constrained to “some demand uncertainty around the edges” over the next few months. Meanwhile, the company remains the “best pure play in the cloud security arena,” and this market is positioned for huge growth over the next several years as hybrid cloud workloads become more widely used. You have a long-term winner going through some very minor near-term headwinds, the sum of which provide a solid buying opportunity.
What I Think: Let me add one very important note here. The coronavirus has knocked ZS stock down by 20% over the past few weeks. That’s a huge sell-off. Yet, I agree with Wedbush, there won’t be much demand impact on cloud security as a result of the coronavirus outbreak, and any negative hit will be constrained to a few months. A 20% drop on a minimal, temporary demand hit? That doesn’t add up. So, like Wedbush, I think buying the dip here makes a ton of sense.
What Wedbush Says: Wedbush views SailPoint (NYSE:SAIL) in a very similar light to ZScaler. That is, you have a strong cloud security player with minimal exposure to coronavirus headwinds, and ton of exposure to cloud transformation and cybersecurity tailwinds. As such, any weakness in SailPoint stock amid the coronavirus outbreak should be viewed as a strategic long-term buying opportunity.
What I Think: I’m a huge bull on identity security solutions. I think identity-based security is the future of cloud security, since it enables more flexibility than traditional system-based security. SailPoint is aligned with this identity security trend and I think the company has a very promising future. That future is not made any less promising by the coronavirus outbreak. As such, although SAIL stock is holding up very well amid the recent sell-off, any weakness going forward in this stock on coronavirus fears is an opportunity.
What Wedbush Says: In a nutshell, Wedbush sees Nuance (NASDAQ:NUAN) as a “core healthcare cloud play for the coming years and ultimately coronavirus should have negligible impact on its business.” Indeed, Wedbush actually thinks that the outbreak could catalyze healthier long-term demand trends for Nuance. “[T]his crisis/outbreak speaks to the next generation technology needs in healthcare in which Nuance plays into with its ACI and AI powered strategic initiatives looking ahead,” said Wedbush analysts in the note.
What I Think: NUAN stock has held up very well during the outbreak. Shares are down only about 6% from their 52-week highs. That’s a bullish sign. Clearly, the market agrees with Wedbush. This is a strong cloud healthcare play, and as a strong cloud healthcare play, the outbreak could actually be a catalyst for strong demand trends over the next few years. That’s why I’m with Wedbush here — NUAN stock is a strong buy on any coronavirus-related weakness.
What Wedbush Says: DocuSign (NASDAQ:DOCU) is increasingly turning into a must-have digital document solution for enterprises of all shapes and sizes as they make progress on their paper-to-digital transformations. The coronavirus outbreak may have some impact on demand, but that impact will be constrained to the next few months. Thereafter, demand trends will re-accelerate and the red-hot growth narrative will regain momentum.
What I Think: I like DocuSign as a business, but I actually disagree with Wedbush here. For two big reasons, neither of which have to do with the coronavirus. First, DocuSign is in an intensely competitive industry, and I think this competition will ultimately slow growth over the next few years. Second, the valuation on DOCU stock is very rich, and I’m not sure I’d be willing to pay up for slowing growth. As such, while Wedbush may be right here and DocuSign stock may bounce back, I’m not sold.
What Wedbush Says: Wedbush is bullish on NICE (NASDAQ:NICE) because they think the company’s enterprise software and open cloud platform transformation attractively positions the company for improving demand and growth trends over the next several years. They also see “negligible impact from the coronavirus outbreak given the company’s core customer base and healthy end markets.” Big long-term growth coupled with negligible coronavirus impact makes NICE stock a top tech pick.
What I Think: I’m largely on board with Wedbush’s thesis on NICE. I do have one caveat: valuation. NICE stock trades at nearly 30-times forward earnings. Revenues are expected to rise 8% this year, and 8% next year. Profits are expected to rise around 10% both this year and next. A 30-times forward multiple for 8% revenue growth and 10% profit growth seems a bit rich. However, if interest rates remain low — as they should — then this valuation friction won’t be a problem.
What Wedbush Says: Wedbush admits that Uber (NYSE:UBER) demand will have take a sizable hit thanks to a coronavirus-related slowdown in global travel. But, the firm is taking a “forest through the trees approach on owning Uber here.” According to Wedbush: “The ridesharing industry has become one of the most transformational growth sectors of the consumer market over the past 5 years with Uber establishing itself as the clear #1 player and in our opinion is paving a similar road to what Amazon did to transform retail/e-commerce.”
What I Think: I’d be buying UBER stock on weakness here. Not only do I agree with Wedbush that this company is positioned to be very, very big one day, but I also think that cost-cutting measures and continued ride-sharing market rationalization will dramatically improve Uber’s profitability in coming quarters. Such improvements will give the stock ample firepower to stage a meaningful comeback in the second half of 2020 once coronavirus fears have fully faded.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been rated one of the world’s top stock pickers by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, Luke Lango did not hold a position in any of the aforementioned securities.