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Could a2 Milk, Bubs and CSL benefit from the Coronavirus?

Markets continue to prove volatile, as concerns over the economic impact of the Coronavirus grow.

Bubs, A2 Milk, CSL and the Coronavirus Source: Bloomberg

While many stocks focused on healthcare and health products may ‘benefit’ from the Coronavirus; whether such benefits become reflected in the share prices of these companies – in the short or even medium-term, is another matter entirely.

Indeed, in an environment where investors may be seriously considering de-risking their portfolios – equities – even the best ones, often run in to trouble.

We’ve seen that clearly in the last week, as some of the world’s largest and most profitable companies have been sold-down by double-digits.

The ASX was savaged by investors today (though it crept up as the day wore on); and though US futures are currently pointing towards gains across the DOW, NASADQ and S&P500, last week was actually the worst for global stocks since the GFC.

Do you think this sell-off has been overdone, or is it just getting started? Trade indices long and short with an IG Trading Account today.

CSL share price in focus

‘Pandemics make the healthcare sector interesting,' says Graham Witcomb, from the Intelligent Investor.

Speaking of the Coronavirus (COVID-19) impact on ASX stocks more directly, Mr Witcomb recently said that:

‘CSL, one of the world's largest flu vaccine makers, may [...] benefit,’ from the Coronavirus.

Mr Witcomb goes on to say that ‘CSL is one of Australia's highest-quality companies and major mispricings are rare; the stock isn't far from fair value. We'd be interested below $200.’

Yet with CSL’s share bobbing around the $300 mark, it currently stands well below those mandated ‘interest’ levels.

A2 Milk and Bubs share prices prove volatile

Other ‘health’ related stocks such A2M and BUB have performed intriguingly in the last month or so.

A2 Milk for example, in its most recent set of interim results noted that it had actually seen an uptick in sales during the first weeks of H2. Here, the IMF company noted:

'Given the essential nature of our products for many Chinese families, demand is strong, particularly through online and reseller channels, with revenue for the first two months of 2H20 above expectations. However this is a dynamic situation and at this stage we are unable to quantify the impact, either positively or negatively, for the full year.’

A2 Milk has actually seen its share price rise in the last month, up 7.63% in that period. The stock however proved volatile today: trading in the red for most of the day before drifting higher as the session wore on.

A2’s small-cap counterpart – Bubs, has fared significantly less well in the last month. This comes even after Bubs reminded investors of infant formula’s ‘essential nature’, and noted that:

'To date Bubs Australia has seen no diminution of demand and minimal disruption to the business due to the Coronavirus outbreak.'

Citi analysts, speaking of A2’s Interim Results even said:

‘We see a2 returning to its roots of rewarding investors with consistent earnings upgrades and, while also factoring in upside risk to 2H20, we see the stock likely to react positively. The China outlook also bodes well for Bubs.'

Even so, the Bubs share price has declined ~10% in the last month.

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

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