There are many stocks, including blue-chip companies, that are trading at cheap valuations as a result of the coronavirus.
But this does not mean that they automatically qualify as bargains.
It’s important that you sift out the wheat from the chaff.
Some companies could be seeing a permanent, structural shift in the industry they are operating in, such that the economics of the business are no longer as attractive as they used to be.
Others may just be suffering from temporary financial troubles and will be able to bounce back once the crisis has passed.
Stocks in the former category are known as “value traps” as they may appear cheap but do not possess attractive characteristics that qualify them for long-term investment.
Personally, there are three stocks that I am avoiding for now.
Unless there is a radical change in either the business environment or corporate strategy, I am inclined to continue to eschew them....