The coronavirus has caused the ASX 200 (INDEXASX: XJO) to fall over 10% before today.
How far will the share market fall? No-one knows. It could be 15%. It could be 20%. It could be more if the coronavirus causing a global economic recession, which it may easily do if it heavily disrupts global supply and demand. Quarantines, lockdowns and isolations could be bad news for industries like hotels, airlines, other travel, restaurants and so on.
But I think it would be a mistake for investors to miss out on these cheaper share prices. Whilst the earnings of shares may be disrupted, we have also seen interest rates fall to record lows in Australia. If you take a 5-year outlook, it doesn't make a lot of sense to try and time the market when the long-term return offered by cash, bonds and so on is so low.
We're being offered much more attractive prices for great businesses, so you may regret not buying these shares:
CSL Limited (ASX: CSL)
CSL is probably the highest-quality share in the ASX 20. Management have done amazingly well at growing the business and its profit year after year. It has taken the world by storm.
The continued investment into research & development of around 10% of revenue is a healthy amount so that CSL can create new products with new earnings streams.
CSL is predicting profit growth in FY20 and over the long-term it could keep growing and growing. Its dividend keeps going up too, so if current shareholders just focus on the payouts it may provide a better long-term mindset whilst shares are volatile.
It's now trading at 37x FY21's estimated earnings. This isn't that cheap yet, so I'd probably want to wait for an even cheaper price.
Altium Limited (ASX: ALU)
In my opinion, Altium is one of the highest-quality shares on the ASX. Its share price has fallen by 30% since 17 February 2020, so I think this is a good opportunity to buy shares at under $30.
The business is aiming for US$500 million revenue and 100,000 Altium Designer seats by 2025, whilst growing the earnings before interest, tax, depreciation and amortisation (EBITDA) margin to 40% or even higher.
One of the strong points about Altium is that it has good cashflow, no debt and a balance sheet with a growing cash balance. It's well placed to ride out any problems.
Unless engineers are just going to stop designing things for a while, they will keep paying for their subscription to Altium. There are no physical barriers to stopping people continuing to use software (perhaps at home), unlike physical stores or airlines which may see less people using them.
Altium is now trading at 42x FY21's estimated earnings.
REA Group Limited (ASX: REA)
I think REA Group is one of the highest-quality ASX shares. It has such a strong market position in the real estate world. You're basically not on the market if you're not using REA Group's digital portal to sell your property. I'd also say it's the first port of call for buyers as well.
One of the main attractions for investors about the owner of realestate.com.au is that it can increase its prices with little detrimental effect. Indeed, as house prices rise it is quite easy for REA Group to justify that its advertising price should rise too because of how important it is for getting potential buyers through the door.
Over the longer-term REA Group could grow into a much larger business with its stakes in overseas property websites in Asia and North America.
I like that REA Group can keep generating earnings as long as people keep buying and selling property.
It's currently trading at 35x FY21's estimated earnings.
Foolish takeaway
None of these prices are cheap. But the share prices are lower and the interest rate is now at a record low, so arguably that justifies somewhat higher prices. Looking out to the next five or ten years, I think the profits generated by these businesses will be a lot higher, so I'm willing to buy and hold through some shorter-term volatility. CSL would be my third pick, REA Group second and Altium would be my top pick.
