Thanks to President Donald Trump’s declaration of a national emergency — a result of the coronavirus from China — the major indices experienced a massive lift on Friday, helping to mitigate the damage earlier last week. Nevertheless, certain retail-levered companies like Starbucks (NASDAQ:SBUX) still feature ugly technical charts. On a year-to-date basis, SBUX stock has shed a staggering 31%.
Over the last few weeks, I’ve consistently urged investors to keep proper perspective. When you consider the total impact of the coronavirus relative to the world population, we’re really talking about a very small segment of the population. Panicking over this outbreak doesn’t do your health any good, nor does it positively influence your portfolio.
Nevertheless, human nature is what it is. In other words, the coronavirus isn’t our biggest problem, but the ensuing panic might be. And that doesn’t help the cause of SBUX stock.
For one thing, being in close quarters with potentially other sick people won’t appeal to consumers. Adding to concerns are reports of the Covid-19 disease transmitting asymptomatically (without symptoms). Therefore, people could get sick (or spread the illness to others) in seemingly benign circumstances. It’s the fear of the unknown, which again has long been a component of human nature.
Second, the outbreak has made us extremely self-conscious of our vulnerability to microbiological threats. According to a report from the Washington Post, we touch our faces two dozen times per hour. Combine that with both workers and passersby breathing on our food or drinks — or potentially spitting on them via excited chatter — and the risk for infection increases dramatically.
These and other fears have capped SBUX stock. But this situation could turnaround soon.
Environment Should Turn Steadily Favorable for SBUX Stock
When the coronavirus first started accelerating in the U.S., various government officials communicated the message that the outbreak should not disrupt your plans to eat (or drink) out. First, mass-scale avoidance of food and beverage establishments would unnecessarily cripple an important business sector. Second, the Food and Drug Administration stated no evidence currently exists of coronavirus transmission by food or food packaging.
However, consumers may not need that kind of official coaxing. Eventually, they’ll find themselves at Starbucks by their own choosing. Naturally, this means that the current fallout in SBUX stock represents an incredible discount.
To start, many companies can’t afford to lose productivity for an indefinite period. That doesn’t just go for cafes and food-and-beverage franchises with high fixed costs and low profit margins. It also applies for multiple business industries that were suddenly and unexpectedly faced with shifting operations online. With more people out and about, this would naturally help lift SBUX stock.
More importantly, I’m certain that eventually, people will get bored staying cooped up inside. No matter how much content they stream from Netflix (NASDAQ:NFLX), the human desire is to socialize offline.
Not a Permanent Situation
I’ve stated this before but right now, the coronavirus seems like an unprecedented danger to our health and freedom. Scientists call this immediacy bias or the tendency “to perceive immediate emotions as more intense than previous emotions.” Unfortunately, this phenomenon prevents us from recognizing context.
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Even if the number of coronavirus cases jumps to 100,000, this would only represent 0.03% of the population. You are far more likely to die from a car crash (1.3% chance) or from a fall (1.2%). Despite these statistics, I’ve never seen anyone not drive (or walk) because of this “elevated” risk.
The coronavirus is a serious problem, but it will go away just like it did in China. By the way, Starbucks has reopened their business in the country and operations will eventually resume to normal.
Therefore, calm thinking will not only win the day for your portfolio but also for your health. Under this context, the hefty drop in SBUX stock is an amazing opportunity for patient contrarians.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.
