Forget 'Black Monday': Bet On ETFs & Stocks Trading Cheap

The novel coronavirus has been dominating global headlines of late. So far, the virus has infected more than 100,000 people, killed more than 3,300 and spread to about 88 countries.Wall Street has been volatile during this stretch but Mar 9, 2020 spelt doomsday as all key U.S. equity gauges slumped more than 7%.

The severe crash was caused by oil price carnage as crude prices plunged 25% after the world's key producing countries failed to cut an output cut deal. This triggered global growth worries, sending markets into a tailspin.

What’s Next?

The crisis this time is dissimilar to the crises faced before. This time, it is caused by supply shocks, with factories shutting down, activities coming to a halt and people confined indoors. Central bank rate cuts, which we have been experiencing of late, can fix demand shocks, not the supply ones.

“If the weakness that we're inevitably going to get is sufficient enough to go into a recession,” we might see a bear market, may be a gentle one, per Liz Ann Sonders, chief investment officer of Charles Schwab (NYSE:SCHW).

Now all depends on the progression of the virus. If a proper vaccine is introduced, we might see a sharp rebound in markets. The only good news is that the S&P 500 has returned 12.75% in the six months after the 5% or more single-day slump. Market watchers said that the index normally logs gains (an average 4.2%) in the very next day. (see the picture below).

Source: marketwatch.com

Though we do not expect the markets to bounce back right away given the rapid spread of the disease, the below-mentioned stocks and ETFs are trading cheap and may be considered for longer term.

ETF Picks

The following funds have a P/E ratio less than the S&P 500 (19.67x) and a Zacks Rank #1 (Strong Buy) or 2 (Buy).

SPDR S&P Retail (NYSE:XRT) ETF XRT – 13.32x

The Zacks Rank #2 fund gives exposure to the retail sector. Rite Aid, Etsy and Stamps.com are its top three holdings. It charges 35 bps in fees.

iShares Core Dividend Growth ETF DGRO – P/E 19.56x

The Zacks Rank #2 fund is composed of U.S. equities with a history of consistently growing dividends. It charges 8 bps in fees. Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL) and Johnson & Johnson (NYSE:JNJ) are the top holdings of the fund (read: Looking to Buy the Dip? Play These Top-Ranked ETFs).

Health Care Select Sector SPDR ETF (NYSE:XLV) (XLV – P/E 16.50x

The Zacks Rank #2 fund includes companies from the pharmaceuticals; health care providers & services; health care equipment & supplies; biotechnology; life sciences tools & services; and health care technology industries. The fund charges 13 bps in fees (read: 5 Top-Ranked Sector ETFs to Buy at Bargain Price).

Stock Picks

The stocks mentioned below have a Zacks Rank #1 or 2, P/E below the S&P 500, % change in the full-year earnings estimate revision greater than 5% in the last four weeks and an annual dividend yield of 2% or more.

JMP Group LLC (NYSE:M)

The full-service investment banking and asset management firm has a Zacks Rank #2, PE of 8.97x, % change F1 Est of 16.67% and a dividend yield of 5.10% annually. It comes from a favorable Zacks industry (placed at the top 13% of 250+ industries).

Macy's Inc. (NYSE:M)

This retailer has a Zacks Rank #1. It has a PE of 4.61x, % change F1 Est of 7.25% and a dividend yield of 13.14% annually. It comes from a favorable Zacks industry (top 18%).

DRDGOLD Limited (NYSE:DRD)

This medium-sized, unhedged gold producer has investments in South Africa and Australasia. It has a Zacks Rank #2. DRDGOLD has a PE of 13.96x, % change F1 Est of 307.69% and a dividend yield of 3.05% annually. It comes from a favorable Zacks industry (top 16%).

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