Coronavirus cash strategy: target prices under watch

Cash and bargain prices: the play amid the cobi19

Buy now, or let panic do its work before putting in a single dollar? That is the question weighing on market watchers as the outbreak spreads and stock markets bleed out. The majority strategy in the conversation is not heroic: stay in cash and wait to see where the bicho really hits. The sectors flagged as future victims are the usual ones in a sudden halt of activity: tourism, airlines, cruise lines, retail and autos. Some companies are already marked with prices their watchers consider outright absurd, epidemic or not.

Why waiting with money on the sidelines wins out

The most repeated argument is that this has not peaked yet. The cobi19 has not yet hit full swing in the United States, and that scenario has not been priced in. Another suspicion hangs over it: that the damage to supply chains will be huge, or nothing at all, and that nobody knows yet.

Central banks' ammunition does not convince. The Federal Reserve has already released $120 billion with another $80 billion in reserve, with the ECB arriving late and slower, according to that narrative. The ironic diagnosis going around: if with all that firepower the indexes barely move a hundred or two hundred points, when the cartridges run out it will be back to the mud.

The sequence of recent sessions feeds that distrust. Futures opening negative, four percent first and five and a half later, rallies nobody buys, and the feeling that every rise is a technical mirage before the next leg down.

The target prices being floated for each stock

This is where the conversation gets concrete. Entries are cited at Renault at €20, Meliá at €4, Las Vegas Sands at $20 and Enbridge at $27. The underlying idea: if the bicho wreaks havoc in the United States, solid but highly shock-sensitive companies can fall 50% and come onto the buy radar.

Not everyone sees it the same way. The sharpest warning comes with Renault: its dividend would have gone from €3.55 to €1.1 per share, a 70% cut read as a full-blown warning about its cash position. The payment falls in May and the drop is vertical, with the question of where it stops and when. The conclusion of whoever flags it: in a stopped world, funding the business will be expensive.

Abengoa also comes up as a special case, with buys below €0.0190 and the argument that this kind of event barely affects it because it trades off-market and depends on its results. Just as relevant is what is ruled out: better not to throw all the meat in at once, with plans to spread the capital over several tranches and portfolios designed for twenty years.

Oil becomes the real trigger

If anything broke the conversation, it was crude. Brent fell to $33 and crude to $30, with Saudi Arabia driving the price into the abyss to force Russia to cut production, according to the reading of the move. With that scenario, the recommendation was blunt: do not buy yet and wait to see oil companies with an additional 50% decline.

The warning was fulfilled almost in real time: whoever predicted the plunge admitted having been right and announced a massive buy within twenty-four hours. Against that, the Baltic Dry had come off historic lows and would have recovered 40%, which was read as one of the missed opportunities of the stretch.

How far can the indexes fall?

The debate on the indexes runs at two speeds. The more cautious one looks at the S&P 500 as the only thermometer of the real US economy and points out that, with an average P/E that once reached 18, there is no obvious excess in aggregate valuation, though there may be sector by sector.

The more pessimistic one has no doubts: the S&P would return to 1,500 points and does not rule out an even worse scenario, with a 30-40% downward run in a year and the IBEX reference around 6,000 points as the entry zone. Hedges are placed on that figure with an inverse ETF on the Spanish index between 6,000 and 6,500.

The day-to-day noise also weighs: too much volatility, wait, do not rush. And the warning that sums up the general tone of these sessions: do not buy now, because what looks cheap today may look expensive in a month or two.

The health risk moving the market

Beneath the market noise is a factor that is hard to model. Word circulates of a 36-year-old recovered patient who died in China five days after being discharged, with the hypothesis that the bicho may lodge in the cerebrospinal fluid. Whoever shares it warns that the markets will crash when this is confirmed. There is no independent confirmation of that clinical reading in the available material.

Against that backdrop, positions range from those who argue that a controlled epidemic would send stocks sky-high to those who remind that nobody can guarantee it. And the one who points out the obvious: if everyone waits for the crash to go all in, maybe it is best not to charge in with the herd.

The printing press at full throttle, the indexes moving a hundred points, and cash waiting on the shore. Someone will have to pay for that open bar.