The markets are very vulnerable and investors need to have a plan for it to avoid incurring significant losses. Part of that lies in knowing which stocks to invest in and which ones to avoid.
The three stocks listed below are especially risky right now and investors may want to avoid buying their shares until the markets look a lot stronger than they do today:
Dollarama (TSX: DOL) has a lot of exposure to the Chinese market and the coronavirus. A supply interruption could wreak havoc on the company as it could reduce the product it has available on store shelves.
And heading into spring and summer when it sells many seasonal items, that could set the dollar-store chain up for some poor results later this year during some key quarters.
In addition to the coronavirus, the rail blockades in Canada will also impact the company and it’s another example of the risk it is facing that’s outside of its control.
Regardless of how strong of an investment Dollarama may be over the long term, with some significant headwinds facing the company today and still lots of uncertainty going forward, this is one stock that investors should steer clear of. The company’s already struggled with sluggish same-store sales numbers in the past, and that’s sure to get worse in 2020.
Air Canada (TSX: AC) (TSX.AC.B) is an obvious stock to avoid as long as the coronavirus is a danger and keeping travelers at home. Not only are airlines cancelling flights, but consumers themselves are going to be reluctant to fly and go into airports full of people where the virus may be present. Discounts and fare reductions may not be enough to offset what could be a year where there isn’t much demand for air travel.
The summer is a key travel period, as families often go on vacations and kids are out of school. Although that’s still months away, if concerns around the virus persist into summer, things can go from bad to worse for the company.
Air Canada will still be a good buy over the long term, but for now, until there’s reason to believe that demand for air travel will recover, investors should avoid the stock, as it could be headed for some significant losses this year.
Cenovus Energy Inc (TSX: CVE)(NYSE: CVE) faces a similar risk to Air Canada. The demand for oil is driven largely by consumers’ need to travel, and if fewer airplanes are in the skies, that’s going to have a significant impact on demand. In February, the price of West Texas Intermediate fell below US$50/barrel for the first time since January 2019.
And with Cenovus showing a strong correlation with oil prices, it’s an oil and gas stock that investors will want to avoid as long as the coronavirus keeps spreading.
Low oil prices have been problematic for Cenovus, and the industry for years now and the lower that oil goes, the worse the situation can be. All it takes is investor expectations of demand for oil to be poor for the price to fall.
Regardless of Cenovus’ operations, if the value of what the company is producing is lower, that’ll impact sales and profitability, and investors will adjust their value of the stock accordingly.
Bottom line
These stocks could become great deals later this year because share prices may become a lot cheaper than they are today. But until the threat of the coronavirus is clear, it’ll be dangerous trying to catch these stocks on their way down.
Investors would be better off waiting for some signs that the crisis is over before investing in any of these stocks listed above.
