The COVID-19 pandemic has sent economic activity into a decline around the globe, which has caused most stock prices to drop substantially. And with no end in sight to the crisis, uncertainty is also adding to investors' panic.
Even companies that appear to be receiving an increase in sales like Amazon (NASDAQ:AMZN) are seeing declines in share prices. As is Disney (NYSE:DIS), which, unlike Amazon, is experiencing a dramatic decrease in revenue after it paused operations in many of its business segments.
Here's why this is an opportunity for investors.
The coronavirus outbreak is hitting Disney especially hard. The Burbank, California company has had to temporarily shut down operations in its parks, cruises, and hotels. What's more, the significant reduction in people going to movie theaters will cause additional pain. However, when the pandemic has run its course, its business will almost certainly return to prior, if not, elevated levels.
People around the world are staying in their homes considerably more to reduce the spread of the virus. The extra time spent at home is causing enormous demand for at-home entertainment. The House of Mouse will likly experience a surge in demand for its streaming services Disney+ and Hulu. Many of those customers who sign up for the service during the outbreak will remain with the company afterward.
As of Feb. 4, it had 28.6 million subscribers on Disney+. The company is planning on launching the streaming service in many European countries this month. The expansion is a significant opportunity to acquire millions of signups while people are at home. If the launches go as planned, it will not surprise me if Disney+ has 40 million subscribers by the end of the year.
For generations, Disney parks have provided memorable experiences families around the world. This type of connection is not likely to be broken by a temporary closure of its parks. When the world returns to normalcy, you can count on Disney parks filling up to the level of hours long waits for most attractions.
Amazon.com is experiencing a surge in demand as people are reluctant to go out and visit stores. Rather, people prefer to order things they need online. The worldwide leader in e-commerce, Amazon is benefiting from the tectonic shift to online shopping. Some consumers, who may have never used the service before the crisis, will now become long-term users.
The increase in customers will likely translate into even more Amazon Prime members. As of its last reporting, the company boasts over 150 million Prime members worldwide. These enthusiasts not only pay a monthly or annual fee to receive a variety of benefits, but they also shop more than non-Prime members.
Further, Amazon is the leader in the fast-growing public cloud market. According to IDC, global spending on cloud services is forecast to grow at a 22% compounded annual growth rate (CAGR) over the next five years. Having leadership in such an expanding market creates tremendous value for long-term shareholders.
Overall, Amazon is an incredible business that's still growing rapidly. Over the past three years, Amazon has grown its revenue by 57%. The coronavirus outbreak is thus far not causing havoc on its revenue streams. However, the short-run revenue from e-commerce remains highly at risk because it relies on workers at its fulfillment centers, where operations can be halted or slowed down like so many other businesses.
What this means for investors
Still, the long-term value of these high-quality businesses remains intact. The broad market sell-off provides an opportunity for investors to acquire shares of Disney at a lower price. Additionally, even though Amazon is still selling at a premium, it may be worth it for investors to buy this rock-solid company at its now slightly discounted premium.
Recall that the expected return from investing in stocks is connected to the expected risk. During these uncertain times, the expected risk is very elevated, which should reward shareholders with a higher return for investing at higher risk levels.
Importantly, investors must keep in mind that in the short-run, the stock markets remain extremely volatile. To counter these fluctuations, you can split your purchase up into portions and spread out your buying over a five-month time span to dollar-cost-average your way into these incredible consumer goods stocks.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Parkev Tatevosian owns shares of Walt Disney. The Motley Fool owns shares of and recommends Amazon and Walt Disney and recommends the following options: long January 2021 $60 calls on Walt Disney and short April 2020 $135 calls on Walt Disney. The Motley Fool has a disclosure policy.