The bull market is now more than a decade old, and the massive stock market strength of 2019 was seeing a continuation into January. Earnings were coming on strong from the market leaders, and most economic data was looking good. Interest rates even looked like they were going to be flat for most or all of 2020. Then came the market fears as China’s coronavirus has spread and become a global health scare. As of February 1, 2020, the number of coronavirus cases has risen to 12,000 and at least 259 deaths have been reported.
When bad things happen and regions or parts of economies get shut down, it has an immediate spillover into the stock market. Not all companies get hit the same, and some even continue to thrive. But when tourists and travelers stop going to hotels, when flights get canceled, when cruises become a major concern, when restaurants and stores shut down, and when big destinations that draw crowds are closed and big events are canceled, it all comes with a major economic impact and many sectors feel the pain immediately.
There is now no possible way to consider that the coronavirus impact in China and beyond will not create a serious hit to China’s gross domestic product for at least the first quarter of 2020. The only question now is whether other nations can avoid the hit when everyone does so much business there.
24/7 Wall St. frequently looks for defensive stocks that do well even when the stock market sells off. That is partially the case for 2020, but in finding stocks that still do well even when there is a growing fear of contagion or pandemic, the view becomes rather different.
We have gone through the large-cap stocks that are based in the United States and that either are in the S&P 500 or are well-known to the markets with multi-billion-dollar market capitalization rates to see which companies are, at least so far, acting as if they are somewhat immune or resistant to the current fears around the market.
American Water Works Co. Inc. (NYSE: AWK) did close down 0.4% at $136.20 on Friday, but it had been up earlier in the day and hit a new all-time high of $137.73. Being America’s largest water utility and serving water to about 14 million people in 46 states comes with some advantages. Businesses can slow down, but everyone still has to drink water (and hopefully use their baths, showers and toilets).
American Water Works shares have risen almost 11% so far in 2020, and the nosebleed valuations of 35 times forward earnings haven’t reached a point of deterring investors yet, even if those valuations for new money are getting harder to justify easily.
Amazon.com Inc. (NASDAQ: AMZN) just reported stellar earnings and its guidance was good enough to keep the strength of the AWS cloud operations running high along with its core Amazon delivery business. Amazon shares closed up 7.4% at $2008.72 on Friday, and the shares hit a high of $2,055.72. Amazon stock is now up almost 9% so far in 2020.
Admittedly, Amazon may be the lease defensive name of these, but it should now have great chart support down closer to $1,900, and 5% near-term downside seems to be considerably less risk than some other tech giants that had risen much greater in 2019 and earlier in January. Amazon is immune to Asia, but it has less dependence there than some of the major tech giants do.
Coca-Cola Co. (NYSE: KO) was down almost 0.8% at $58.40 on Friday, but its shares saw a solid earnings gain this week, and it did hit a new high of $59.08 on Friday as well. Coca-Cola is generally a go-to defensive name anyway, and it now sells water and many other sports and daily beverages aside from its core Coca-Cola and soda beverages.
Coca-Cola’s stock chart (see below) has exhibited a breakout from a long-term peak as well. Its shares are up 5.5% so far in 2020.
Colgate-Palmolive Co. (NYSE: CL) is one of the go-to defensive stocks in most down market days, but it managed a 4.3% post-earnings gain on Friday to close at $73.78. Its more recent level of closer to $71 that was resistance on the chart may now offer strong support for limited downside.
Colgate’s $63 billion market cap is nowhere close to the largest of the consumer products makers (P&G).
Duke Energy Corp. (NYSE: DUK) is not the only utility that has seen its shares rise, but it is among the largest utilities in America and still has valuations that are not out of line with the market and the utilities sector. Duke Energy stock closed up almost 0.2% at $97.63 on Friday, with a $71 billion market cap.
Duke’s shares hit a new high of $98.05 on the day while still having close to a 4% dividend yield. The stock is now up over 7% so far in 2020.