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Dow Jones Crashes 1,000 Points But Warren Buffett Says Don’t Panic

Last Updated September 23, 2020 1:36 PM
Laura Hoy
Last Updated September 23, 2020 1:36 PM
  • The Dow Jones nosedived Monday, but investors who are willing to take a risk could use this dip to nab value stocks.
  • Warren Buffett reminded investors not to panic over the weekend as coronavirus spread throughout Italy.
  • While the virus is likely to dent global growth, the impact is still likely to be temporary

It seems the U.S. stock market has finally started to panic about the coronavirus after weeks of shrugging off its growing severity. The Dow Jones lost 2% last week and this week looks likely to bring on more of the same after coronavirus cases in Italy skyrocketed over the weekend.

In a bull market that’s been stretching on as long as this one, a sell-off is a terrible thing to waste. At least, that’s what famed investor Warren Buffett alluded to over the weekend.

The Oracle of Omaha has been under-fire for sitting on a $128 billion cash horde  through 2019, but we might see his investment company Berkshire Hathaway (NYSE:BRK) start taking up positions. Buffett is known for seeking out valuable companies whose long-term growth stories are being undervalued by the broader market.

Warren Buffett, Berkshire Hathaway
Don’t let the Dow’s decline scare you; according to Warren Buffett, investors should stay the course. | Image: Johannes EISELE / AFP

Over the weekend as Dow futures continued to tumble, Buffett told CNBC  that coronavirus isn’t a reason to panic despite its worrying spread:

Has the 10-year or 20-year outlook for American businesses changed in the last 24 or 48 hours? You’ll notice many of the businesses we partially own, American Express, Coca-Cola — those are businesses and you don’t buy or sell your business based on today’s headlines. If it gives you a chance to buy something you like and you can buy it even cheaper then it’s your good luck.

Of course, increasing your stake in equity holdings right now is risky— there’s still no telling exactly how much of an impact the coronavirus is going to have on the global economy. But most agree that as it stands now, the damage will be short-term. 

As Federated Investors portfolio manager Steve Chiavarone put it ,

We view this as headline risk. Our base case view is that coronavirus continues to represent demand delayed and not demand destroyed.

Dow Jones Industrial Average
The Dow Jones is nose-diving, but that could make for a buying opportunity if you’re brave. |Source: Yahoo Finance 

Plus, China appears to be over the worst of the virus as the daily number of new cases has finally dropped below the daily number of recovered patients. 

With the Dow starting the week down 3.6%, it seems there’s plenty of good luck to be had. Here’s a look at some of the best bargains to buy as the stock market comes back down to earth. 

Energy Stock: Valero Energy (NYSE:VLO)

While the oil and gas sector is likely to see continued volatility over the next year, there’s a compelling argument  to start building a position in the industry. Not only can investors find some of the best dividend players on the market in the oil and gas sector, but it looks like coronavirus worries could be rock-bottom for the industry.

Valero makes a great play in the energy space due to it’s willingness to reward shareholders. | Source: Yahoo Finance 

Valero makes for a good pick because management’s focus on capital discipline has kept free cash flow healthy. The firm is shareholder friendly with a goal of returning beset 40% and 50% of its operating cash flow to investors. At the end of January management raised Valero stock’s dividend payments  and the firm offers a juicy yield of 4.73%.

Tech Stock: Qualcomm (NASDAQ:QCOM)

Another great value play that has seen its share price discounted in the wake of coronavirus is chipmaker Qualcomm. Qualcomm stock has lost 5% over the past week after management warned that coronavirus will likely dent future earnings  as demand for smartphones in China wanes. 

Coronavirus will likely hurt Qualcomm’s earnings, but that’s already been priced in. | Source: Yahoo Finance 

That’s definitely worth considering from a risk standpoint, but the coronavirus impact is likely fully priced in to QCOM shares at this point. Management was cautious in their guidance, meaning they’re probably using a wort-case scenario model. 

This could be a great buying opportunity for long-term investors as Qualcomm looks set to capitalize  on the shift toward 5G networks. Once coronavirus fears start to subside, investors likely won’t get another opportunity to buy a growth play like Qualcomm at such a deep discount. 

Dow Stock: Caterpillar (NYSE:CAT)

Caterpillar is the world’s largest construction equipment maker, so the firm tends to be a winner during periods of economic growth. CAT stock has dropped 12% since the start of the year as trade war concerns and coronavirus fears weigh on investor sentiment. Weak EPS guidance for 2020 coupled with worries about economic growth have hit Caterpillar stock hard.

Caterpillar stock has been plunging on recession fears, but if they’re unfounded investors could be in the money. | Source: Yahoo Finance 

Still, that could make for a great buying opportunity if you’ve got time to wait out the turbulence. Caterpillar stock’s current slump suggests we could be heading for a recession—something most analysts agree is unlikely. If a recession doesn’t materialize, Caterpillar could deliver gains of around 20%  this year.

As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities. The above should not be considered trading advice from CCN.com. The opinions expressed in this article do not necessarily reflect the views of CCN.com.