Dominating current headlines is the scary spread of COVID-19, the coronavirus which originated in Wuhan, China. As the tragic death count rises and the number of infected people around the world grows, the impact on global economic growth becomes more uncertain. Fearful of a global recession, Mr. Market recently responded to the virus with a feverish 4,000+ point selloff on the Dow Jones Industrial index. Supply chain disruptions, reduced travel and lower consumer demand will impact financial results, especially for companies doing substantial business in China. 

As a result of a slower return to normal conditions in China because of the virus, Apple (APPL) lowered their growth outlook due to two main factors. The first is that worldwide iPhone supply will be temporarily constrained. While iPhone manufacturing partner sites are located outside the Hubei province — and while all of these facilities have reopened — they are ramping up more slowly than anticipated. These iPhone supply shortages will temporarily affect revenues worldwide. The second is that demand for Apple products within China has been affected. All Apple stores in China and many partner stores had been closed. Apple is gradually reopening retail stores, but they are operating at reduced hours and with very low customer traffic. Microsoft (MSFT) also expects lower revenues in their personal computing division due to supply chain disruptions. 

Nike (NKE) has temporarily closed about half of its stores in China due to the coronavirus. In addition, they are operating with reduced hours and experiencing lower than planned retail traffic. In the short term, Nike expects the situation to have a material impact on their operations in Greater China. 

Starbucks (SBUX) has also closed half of its stores in China. Given the dynamic nature of the circumstances, the duration of the business disruption and reduced customer traffic, the related financial impact cannot be reasonably estimated, although the impact will likely be material to international results. 

Disney’s (DIS) parks in Hong Kong, Japan and China are expected to be negatively impacted in the second quarter and for the balance of the year by closures due to the coronavirus. With crossborder travel being impacted by the coronavirus, Mastercard (MA) lowered their first quarter revenue outlook. Booking Holdings (BKNG) expects first quarter sales and earnings to decline due to increased travel cancellations and lower new travel bookings because of the coronavirus outbreak. Maximus (MMS) reported that the impact of the coronavirus is expected to negatively impact EPS due to the slowdown in tourism hiring.

Warren Buffett, CEO of Berkshire Hathaway (BRK-A, BRK-B), said the coronavirus outbreak has affected several of Berkshire’s businesses. Many Dairy Queens in China are closed, while those that are open aren't doing much business. Johns Manville insulation and Shaw carpeting have seen supply chain disruptions. In addition, Berkshire Hathaway’s significant investments in Apple and the airline stocks have been adversely impacted by the virus.

However, Warren Buffett noted that he buys businesses to hold for 20-30 years, and his positive outlook for these businesses has not changed due to the coronavirus. Buffett remarked that the coronavirus is “scary stuff,” but it won’t cause him to sell any stocks. If stock prices drop, it makes valuations appear more attractive, and Buffett is eager to buy more stocks and businesses with the $125 billion in cash Berkshire Hathaway is holding.

Johnson & Johnson (JNJ) is expediting its investigational coronavirus vaccine program in response to the outbreak. The company is working closely with global partners to screen its library of antiviral molecules to accelerate the discovery of potential COVID-19 treatments and provide relief for people in China and around the world.

The antidote for Mr. Market’s nasty virus is that our high quality companies are fundamentally strong and healthy. This disruption to their business is expected to be only temporary with a full recovery more than likely in the year ahead. Read these stock recommendations in my other articles, all exclusive to TaklMarkets here.