Theoretically, among the heavily discounted names in the markets, Amazon (NASDAQ:AMZN) appears a solid contrarian buy. Due to the escalating situation involving the coronavirus from China, many businesses and events are shutting down indefinitely, either by choice or by mandate. Still, people need to buy stuff, the thinking goes, so this dynamic invariably benefits Amazon stock.
Plenty of evidence exists to support AMZN’s bull thesis, and they’re not just based on logical deductions. For instance, Teladoc Health (NYSE:TDOC) shares absolutely skyrocketed this year, gaining almost 40%. Under the coronavirus panic, the optimism driving TDOC is understandable. As an app connecting patients to medical professionals via teleconferencing technologies, this platform eliminates face-to-face contact.
Of course, this is the same driving force behind Amazon stock: people can get their shopping done without having to wait in line, potentially with other sick people. Therefore, I intended to write a positive story about AMZN.
However, as the disease known as Covid-19 has begun spreading to most states, infecting at time of writing nearly 2,300 people, one factor became very clear. It’s not the coronavirus itself that people need to be worried about. Instead, it’s the ensuing panic.
In 1975, the U.S. had nearly 1.47 million hospital beds for a population of approximately 219 million. That’s one hospital bed for every 150 Americans. According to the Washington Post, there are only 924,100 hospital beds against a population of roughly 331 million. Do the quick math and you get one bed per 358 Americans, or a 139% increase in per-capita demand.
Honestly, we just don’t have the supply to meet this critical demand, which may impact Amazon stock greatly.
Amazon Stock Doesn’t Control Its Fate
Recently, the mainstream media had a field day with the Centers for Disease Control and Prevention’s worst-case simulations, which forecasted up to about two-thirds of Americans contracting the disease and perhaps up to 1.7 million deaths. As the New York Times’ Sheri Fink states, it’s a sobering thought but it comes with a caveat: it doesn’t take into account intervention efforts.
However, the reality is that the U.S. must act quickly and decisively, perhaps in an unprecedented manner. Again, it’s not the coronavirus – from what we know, it’s not at all a death sentence. And yes, there are many other things to be worried about, such as “regular” flu, natural disasters, auto accidents, nuclear warfare, etc.
However, there-are-other-things-to-be-worried-about keyboard commenters can’t deny one fact: the coronavirus is an additive threat. This means that your worrying about other things won’t mitigate your Covid-19 exposure one iota.
Hence, the kicker: people flooding and quickly overwhelming the healthcare system will exacerbate all the things that we should be worried about. Frankly, it doesn’t matter whether the coronavirus is a real threat or not. Unfortunately, it’s the panic that kills people much more so than the disease.
In that scenario, I don’t see this as a positive for Amazon stock. What would you be buying anyways?
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Furthermore, I forecast severe risks to AMZN if the federal government fails to regain social control. Since the onset of the Great Recession, the trajectory of Amazon stock and the consumer sentiment index has shared a 77.2% correlation strength. In other words, as consumer sentiment moved higher, so too did AMZN.
But what if sentiment declines, which it surely would if this crisis worsens? Will Amazon stock drop too? If it follows established trends, the answer is yes.
Hopeful but Realistic
As you probably guessed, I’m monitoring the coronavirus development closely. What I’d like to do is find a reasonable middle ground between the end-of-the-world forecasts and those who are treating this as just an extended flu season.
Here’s the bottom line: we can control and contain the coronavirus and mitigate its broader impact. As you likely know, South Korea has done an excellent job flattening its infection curve before devolving into a China-like epidemic. Yet the Korean government accomplished this through aggressive testing and containment efforts.
Do we have what it takes to do the same here? Admittedly, I have my doubts. In this country, identity politics have gotten out of hand. As well, we have sadly forged political, social and racial divisions. This is really a time to come together and help our fellow man. Instead, we are scapegoating and stigmatizing people and hoarding goods like maniacs to the point where our fellow man can’t even wipe his rear.
If we lived in a rational society, I’d probably be all over Amazon stock. Because we live in America, I think waiting is the prudent choice.
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.
