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Coronavirus Scare Hits Markets: 3 Stocks to Buy the Dip

Zacks Equity Research

Concerns over the outbreak of a newly detected virus have kept investors on tenterhooks recently. As news of the Chinese Coronavirus made headlines earlier this week upon being detected in a U.S. citizen, the panic induced among authorities, passengers and investors led to a plunge in travel- and luxury-related stocks.

Considering the current scenario, one could take a look at some stocks that suffered from the health hazard but bear strong fundamentals. This implies that eventually their share prices will go up. In fact, the decline in their recent price performance makes them all the more lucrative.

U.S. Equities Plunge on Potential Pandemic

U.S. benchmark indexes took a dip on Jan 21, retracting from record highs witnessed last week. The Dow Jones Industrial Average, NASDAQ Composite and the broader S&P 500 declined 0.5%, 0.2% and 0.3%, respectively. The reason behind this dip was none other than fears of a potential Coronavirus pandemic, which has resulted in 6 deaths and more than 300 infected in China.

Wall Street took the road south after the U.S. Centers for Disease Control and Prevention announced the first case of the new Chinese disease within the United States.

The United States is the fifth country to report the Coronavirus after China, Thailand, Japan and South Korea. An American who returned from a trip to central China was diagnosed with the virus last week.

Stocks Offering Great Entry Points Right Now

The panic has resulted in travelers restraining their plans, as several airports around the globe raised the extent of their biosecurity screenings of those from the Asian country. As a result, stocks of airlines, hotels and resorts were hit hard.

Airlines such as United Airlines Holdings, Inc. UAL, Delta Air Lines, Inc. DAL and American Airlines Group Inc. AAL, and cruise companies such as Royal Caribbean Cruises Ltd. RCL and Carnival Corporation & Plc CCL were among those stocks that took a beating on Jan 21 because of the Coronavirus scare. In fact, marketers of luxury goods also felt the heat as passengers curtailed their plans to travel.

The affected stocks were those with maximum exposure to the Asian region, since these companies are mostly dependent on spending by Chinese tourists. In addition, as the influx of tourists expected at this time of the year thins (the Chinese New Year being this week), travel- and luxury-related stocks could decline further.

Bright Prospects for Travel and Luxury Stocks

Airline stocks may not have had a blockbuster 2019, but these stocks have a sunnier picture this year, thanks to a strong U.S. economy, a truce in U.S.-China trade war and low oil prices. In addition, according to the International Air Transport Association (IATA), profitability for the airline industry this year is expected to be $29.3 billion.

The outlook for the top line is also better at $872 billion, which indicates 4% growth from 2019. Passenger traffic and capacity in 2020 are also expected to increase 4.1% and 4.7%, respectively.

Secondly, this plunge in stocks of hotels, resorts, casinos, cruises and luxury goods could be short-lived. After all, sales of luxury products thrive on the power of individual branding, which could pick up soon enough. In addition, the number of people opting for a holiday is expected to reach normalcy, as fears of the new pandemic subside.

3 Stocks to Buy

We have, therefore, selected three companies that offer profitable entry points at present. All of these companies carry a Zacks Rank #1 (Strong Buy) or 2 (Buy).

Shares of Delta Air Lines, Inc. plunged 2.7% in the last trading session to $60.34. However, this decline could be short-lived since the fundamentals of the Zacks Transportation - Airline industry are good.

In addition, Delta Air Lines’ expected earnings growth rate for the current quarter is 7.3% and the Zacks Consensus Estimate for its current-year earnings has moved 1.7% north in the past 30 days. Delta Air Lines carries a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of The Estee Lauder Companies Inc. EL dipped 1% in the last trading session to $217.73. But the Zacks Cosmetics industry company’s expected earnings growth rate for the current year is 12% compared with the industry’s projected earnings growth of 3.1%.

The Zacks Consensus Estimate for Estee Lauder’s current-year earnings has also moved 0.2% north in the past 30 days. Estee Lauder carries a Zacks Rank #2.

Shares of Carnival Corporation & Plc has moved 2.3% south in the last trading session to hit $50.69. But the company’s expected earnings growth rate for the current year is 3.4% and the Zacks Consensus Estimate for Carnival Corporation’s current-year earnings has moved 2.7% north in the past 30 days. Carnival Corporation belongs to the Zacks Leisure and Recreation Services industry and carries a Zacks Rank #2.

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Click to get this free report United Airlines Holdings Inc (UAL) : Free Stock Analysis Report American Airlines Group Inc. (AAL) : Free Stock Analysis Report Delta Air Lines, Inc. (DAL) : Free Stock Analysis Report The Estee Lauder Companies Inc. (EL) : Free Stock Analysis Report Royal Caribbean Cruises Ltd. (RCL) : Free Stock Analysis Report Carnival Corporation (CCL) : Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research