Monday, April 27, 2009

Continue to Avoid Swine Flu-Related Stocks

Originally posted at The No Buy List:

This morning, I wrote about huge daily declines in share prices of companies that have exposure to any business that may be adversely affected by the swine flu (or simply a reluctance to travel/go out because of fear of it). Shares of such companies continued to fall throughout the day:

  • Carnival Corp. (CCL), -13.5%
  • Royal Caribbean (RCL), -16.3%
  • Southwest Airlines (LUV), - 9.4%
  • US Airways (LCC), -17.4%
  • Smithfield Foods (SFD), -12.4%
All five companies mentioned saw a slight rebound in aftermarket trading (generally 1-2%), suggesting that investors were ready to expose themselves to some risk.

The pace of new developments in this swine flu saga seems to be slowing, pointing to a possible end of such knee-jerk declines. However, some entities continue to escalate their reactions: Russia has temporarily banned meat imports from Mexico and a few US states, and more recently announced that it will begin checking planes arriving from the Americas. The World Health Organization has also raised its alertness level, and new cases are continuing to pop up in different corners of the globe.

So how does swine flu relate to stocks right now? I would not yet dabble in companies and industries (travel, meat, etc.) that are effected (actually or psychologically) from this swine flu concern. If and when the panic blows over, investors that jumped in at the right time will realize healthy gains from stocks like CCL. However, it is too soon to discern the extent of this swine flu problem, so prudent investors should avoid buying any affected companies in the immediate future.

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