Although recessions and bear markets aren't fun for anyone, they do give an opportunity for companies and stocks to differentiate themselves. It's natural to want to focus on the stocks with the biggest declines. They will certainly have massive bounces when conditions improve, however these steep losses often indicate some underlying problem in the business. An example is restaurant and retail stocks which have seen steeper declines than hotels, airlines, and casinos.
It's also savvy to watch the stocks that show relative strength during these times. While the market makes lower lows, they make higher lows. When market conditions improve, they will be the first to make new highs. In 2008 focusing on the weakest stocks would have left you with banks and homebuilders which lagged for many parts of the bull market. The strongest stocks included companies like Netflix (Nasdaq: NFLX), Amazon (Nasdaq: AMZN), and Apple (Nasdaq: AAPL).
These stocks made new highs in late 2009 or early 2010, while the S&P 500 didn't make a new high till 2013. Therefore while active traders may attempt to pick bottoms in beaten-down stocks that will have violent bounces, longer-term investors should use this time to narrow down a list of candidates. Previous articles have mentioned stocks like Teladoc (Nasdaq: TDOC) and Zoom Communications (Nasdaq: ZM) which could thrive in the "social distancing" environment. Here are some other candidates:
Healthcare and Biotech
Healthcare and biotech are well-positioned to thrive. The coronavirus outbreak has highlighted the shortcomings in the country's healthcare infrastructure. And it's likely that these holes will be patched up in the coming years which will drive a spending boom for the industry. It will also drive more investment in research & development for vaccines and treatments.
The mishandling of the outbreak and subsequent recession have dampened President Trump's reelection odds and increased odds of Democrats winning Senate seats. This is also positive for these sectors. Defense stocks tend to do well with Republican administrations, while healthcare spending is prioritized under Democrats. Two stocks showing particular strength are Gilead (Nasdaq: GILD) and Regeneron (Nasdaq: REGN).
Big Box Retailers
Another area of the market that's outperforming are big-box retailers like Costco (NYSE: COST), Walmart (NYSE: WMT), Target (NYSE: TGT), and Kroger (NYSE: KR). The panic has led to a surge in buying food, toilet paper, cleaning supplies, and other essentials that are leading to a spike in short-term sales. Beyond this, the companies are well-positioned to take advantage of the weakness in the rest of the retail sector as smaller competitors may go bankrupt due to the current situation and probable recession.