Need to Know: Why these stocks are worth holding as markets navigate a deadly pandemic

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Another big bounce for equities is in the works on rising confidence that the U.S. and Europe are chipping away at the coronavirus outbreak. That is even as Spain’s death toll rose again on Tuesday, a reminder that this fight won’t be easy.

Are markets getting ahead of themselves? Steen Jakobsen, chief investment officer at Saxo Bank, notes how Denmark is among the first in Europe to announce a plan to reopen the economy. But that will start with only opening schools for the youngest students through fifth grade and nothing else until at least May 10. “This points to the very slow pace of normalization,” he says.

Luc Filip, head of portfolio management at Banque SYZ in Geneva, who provides our call of the day, adds to that, saying that investors need to remember that a “peak number of cases doesn’t mean the economy will be reopened next week.”

That said, Filip sees the risks of markets dropping another 20% or 30% lower than two weeks ago, because of the extensive measures by governments and central banks. He is more cautious on U.S. equities, though, due to poorly coordinated COVID-19 measures between states and the federal government.

“There is a risk that the U.S., by postponing stronger measures, by hesitating, may have a larger outbreak and then a larger impact to the economy,” says Filip.

Where does that leave his investment choices? Outside of gold and the dollar, for now, he is focusing on quality stocks both in the U.S. and Europe, where they are shifting toward a neutral position because governments have taken up measures fast.

“Big companies, strong balance sheets, strong market positioning, low debt. These kind of companies, we like them in Europe and the U.S.,” he says. Those names include Google-parent Alphabet GOOGL, +8.28%, Amazon AMZN, +4.77%, Mastercard MA, +12.19%, L’Oréal OR, +1.91%, which has global reach and Nestlé NSRGY, +1.76% NESN, -0.42%.

Companies need to have sufficient reserves to survive lower revenues from a demand drop, and while these may not be the cheapest stocks and sometimes viewed as boring, he bets a few will be “even stronger after the outbreak subsides.

“What we don’t recommend now is to chase companies that are under stress, companies that have weak balance sheets. We don’t like them and don’t want them now, even if they are 40% lower. In the case all this lasts longer, the worse it will be for low-quality companies,” says Filip.

Read: Why one fund manager says the market low was March 26

The market

The Dow YM00, +3.98%, S&P ES00, +3.53% and Nasdaq NQ00, +3.29% are pointing to big gains later, and European stocks SXXP, +2.74% are also climbing, even in the U.K., as investors monitor the progress of Prime Minister Boris Johnson, who was moved to intensive care on Monday due to coronavirus. Asian markets tracked Monday’s Wall Street gains. Crude oil CL00, +3.22% is moving up.

The chart
The buzz

Small businesses suffered a record drop in optimism amid the deepening pandemic crisis. White House adviser Peter Navarro reportedly warned in January that the U.S. was at risk from the pandemic and the medical community is divided over President Donald Trump’s pushing of a malaria drug for treating COVID-19. A hospital cleaner on the front lines has some tips on how to stay safe. A new study says 70% of all U.S. counties are likely to suffer an epidemic, and a former “Jaws” star has died of the virus.

Random reads

New Zealand’s health minister is demoted after driving his family to the beach.

Hong Kong zoo shuts down and pandas finally mate after 10 years.

Elton John leads star-studded lineup for coronavirus-relief concert.

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