What's not impacted? What's going down that doesn't deserve to go down?
That's how you have to be thinking of this moment. You can't think of it as an opportunity to dump stocks. You will be selling into a gigantic maw of panic and that has usually not produced the best results. Notice I did say "usually," because there are moments when any time was a good time to sell, particularly in 2007 to 2009.
This is not one of those times.
First, let's re-establish the negatives. We have to presume now that the Coronavirus contagion is not stoppable, even as we would like to think it is. There were so many people who left Wuhan, the epicenter, when they were still healthy and they are now coming down with the illness. It's pretty clear that the virus spreads from rapidly person to person, so rapidly that we are hearing lots of conspiracies about a bio lab in Wuhan that might have mistakenly discharged the coronavirus and it was not transmitted initially by animals to humans. Because of the frightening nature of it, not a lot of stocks will initially be buyable. Do you want to go out to eat knowing that the table next to you might have someone connected to someone who has met a person from Wuhan and doesn't know that she is contagious because she has no sign of it?
We know that you don't want to fly to or from China. But there will be some now who won't want to fly at all. Travel is worrisome. But we flagged all of these last week and not a lot was thought of them. The only new ones revolve around the possibility of a China shutdown and the prospect that someone from China has already infected someone.
That still leaves plenty of stocks to own, though. So let's build a portfolio of what has less exposure to the illness or will actually do better.
Let's start with AbbVie (ABBV) . We know that the Chinese government is using a combination of two AbbVie drugs, Ritonavir and Lupinavir, to help treat the illness. These two drugs have been used to fight AIDS in conjunction with other medicines.
AbbVie's stock just had a huge fall based on stories about how it might have a shortfall when it reports on February 7. Given that it is about to close on the deal to acquire Allergan (AGN) , I doubt that I care all that much about whatever happens this quarter.
AbbVie will be taking Allergan's main drug, Botox, internationally. Right now Allergan has some presence overseas, but AbbVie can truly expand on the footprint. Allergan just got an acute pill for migraine that alleviates the pain for most within two hours. As the spokesperson for the American Migraine Foundation, I can tell you it could be gigantic, a blockbuster from the get-go. It's $100 a pill. Migraines can be blinding, painful, debilitating. There has never been a real pill that is that effective. I think the numbers are too low here. We want to be bigger in AbbVie for Action Alerts Plus because of that.
In the meantime, with rates coming down because of a belief that economic activity will slow dramatically if China goes "offline," the 5.6% yield may be the best thing the stock has going for it. I like the combination with Allergan.
Next: Clorox (CLX) . Here's a reliable company that sells the only product that kills everything. I believe that people will stockpile wipes knowing that even without any sort of cure in sight, these can do well because the main thing you need to do is not touch items that may have been touched by others. That's not easy, but if you carry wipes at least you have a shot at it. Clorox is always the company that does the best when we have epidemics. It had a 10% move at the time that H1N1 was raging as people grabbed as many wipes as they would during the period.
With Clorox, you have other divisions not doing that well, chiefly bags and charcoal. There's a new version of their bags coming out shortly and Kingsford season is too far away, so you have little earnings risk. It's 2.6% yield isn't the most protection that can be offered, but it can help slow a stock on the way down.
On Tuesday, McCormick & Co (MKC) reports -- and I know that there have been a couple of downgrades of the spice company. Yet the fact that it is only two bucks from its high is almost as if someone anticipated the spread of this illness and gobbled some up. I think that it's a good one because it is the ultimate stay-at-home stock. If you really believe that going out is going to become problematic, then buy some of this stock today and wait to see the quarter.
Three years ago, a little company called Owens & Minor (OMI) bought the single-best infectious disease pureplay, Halyard, which had been an underperforming company ever since it was spun off by Kimberly-Clark (KMB) . The acquisition cost Owens & Minor $710 million and for that the company got the premier franchise in hospital gowns and hospital masks. This stock, having falling 84% in the last five years, is not for the squeamish. It has more than $1.6 billion in debt and is firesaling certain properties to raise cash to meet those obligations.
That said, it has historically been an investment in a heavy flu season so it does synch up with the coronavirus.
I know that Moderna (MRNA) seemed to shoot from the hip last week when it said that it was working on something for the coronavirus. But we spent some time with Moderna at the JP Morgan Health Care conference and I can tell you they are anything but hype artists.
The simple fact is that CEO Stephane Bancel has developed a biotech company with a revolutionary concept: It is trying to create a whole new category of medicines based on messenger RNA, which is the agent in your body that takes the plans that DNA gives your body and puts them in effect.
With this novel method, Bancel has created 21 development programs to treat many diseases -- including infectious diseases like the coronavirus. It has contracts with both the Biometric Advanced Research and Development Agency and the Defense Advanced Research Projects Agency to develop global health vaccines. It is also allied with Merck (MRK) on more commercial vaccines. It is the single-most-likely company to come up with something in a very short period of time given its platform and its backers. I would not normally recommend a company as a speculation that it's the one that comes up with the cure. However, the fact is this is a very good company with or without the coronavirus, so I would buy it here.
One more: Bristol-Myers Squibb (BMY) Yes, Bristol-Myers which has a formidable HIV franchise, among other things, that I like very much -- including the drugs just picked up by the purchase of Celgene. The company reports on February 6, and I expect they will lay out some synergy targets for the Celgene acquisition. The HIV business is not big for them. But their infectious disease portfolio is strong and is still one more reason to buy the stock.
I know these are all conservative situations, but then again, you are buying these in the expectation that, with the exception of Owens & Minor because of that balance sheet, they will work with or without a cure. You need that to have the peace of mind to pick up some into the downturn.