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Are you doing your part, citizen?
Yesterday, the White House laid it all on the line. By staying the course on social distancing, we can do more than create a thousand points of light … We can save 2.2 million Americans.
That’s 2 million dreams for the world we’re gonna make! (Excuse me while I break out into song… I think of what the world could be, a vision of the one I see!) Yeah, the quarantine is starting to get to me, why do you ask?
That’s a message of hope if ever I’ve heard one. And we’ll need all the positivity we can get.
The U.S. economy is in trouble … with a capital “T.” When I’m mixing up quotes from George H. W. Bush, The Greatest Showman and Starship Troopers … you know we’ve got trouble.
The leading edge of the coronavirus’ impact on the economy is just starting to arrive — and it looks bad:
- The ADP Moody’s Analytics National Employment Report found that private employers shed 27,000 jobs in March. It was the first payroll decline in two and a half years. What’s more, the data also didn’t include last week’s record — 3.28 million unemployment claims.
- The March Institute for Supply Management manufacturing purchasing managers’ index (PMI) plunged to 44.5%. Readings below 50% indicate economic contraction.
- According to the Department of Commerce, construction spending fell 1.3% in February, indicating weakness before the impact of COVID-19 in March.
The Takeaway:
We’re no strangers to the coronavirus. You know the rules and so do I. (So do I…)
Market commitment’s not what I’m thinking of. Great Stuff knows the game and we’re gonna play it…
Despite the market’s massive head fake in the last week of March, the Dow still experienced its worst first-quarter performance in its 123-year existence. That includes the 2008 financial crisis and the Great Depression.
And, yes, that rally off the March 23 low was a head fake. Wall Street still has no idea how bad the COVID-19 situation will get in the U.S. and investors are only now getting a look at the true impact from initial economic indicators.
In the immortal words of George W. Bush: “…fool me once, shame on — shame on you. Fool me — you can’t get fooled again.”
That’s why Great Stuff didn’t tell you to buy into the rally.
It’s why we told you to hold gold, bonds and currencies.
It’s like social distancing or sheltering in place for your portfolio.
Preserving your wealth and investment capital — that is your hope … your light at the end of the tunnel.
We won’t let you get fooled again. That’s why we only recommend maintaining investments in well run and well capitalized companies — ones we know will come through storm stronger than before.
Now, how do you find said well-run companies?
Three rules. That’s all you need.
That’s all that an expert like Charles Mizrahi needs, anyway, to find which stocks are diamonds in the rough and which are pure, untouchable garbage. In fact, Charles just recorded a video that explains all three rules to find which stocks are solid enough to weather the storm.
The Good: Can You Hear Me Now?
So, you want to know what a well-run and well-capitalized company looks like?
Well, Great Stuff has you covered.
Verizon Communications Inc. (NYSE: VZ) has it all: stable revenue streams, a 4.6% dividend yield, a strong balance sheet, cutting-edge 5G technology and a consumer base that’s not adversely affected by the pandemic.
How do you like them apples?
What’s more, Goldman Sachs analyst Brett Feldman agrees (no relation to, Corey … I don’t think). Feldman upgraded Verizon to “conviction buy” from just a regular old “buy” rating this morning, citing practically all of the reasons listed above. He left out 5G technology, which we think is a key driver … but no one’s perfect.
Feldman did cut his price target from $65 to $61 in light of VZ’s recent 12% decline, but he remains quite bullish on the company. Verizon’s “services are relatively non-discretionary and will see less of an impact from potential drops in consumer and business spending,” Feldman told clients.
The only reason why VZ isn’t a Great Stuff Pick right now is that the market has some downside from here, and we think you might get a better price in the next week or so. (See, we’re always looking out for you!)
The Bad: Shale Be Comin’ Round the Mountain…
OK, let’s be honest, she’s not comin’ round the mountain anytime soon … at least not for oil companies.
Case in point: BP PLC (NYSE: BP) provided an update to investors, calling the current market the “most brutal environment for oil and gas businesses in decades.”
At least BP didn’t sugarcoat it, right?
BP went on to detail a 25% cut in spending for 2020, including a $1 billion drop in spending on its U.S. shale business. The company also announced that it will take a $1 billion impairment charge in the first quarter due to weak oil demand.
Now, BP will likely come through the current oil market crash just fine. It’s done so before, according to CEO Bernard Looney (hee hee … Looney).
The real takeaway from BP’s announcement is the awful predicament for U.S. shale oil producers. BP is cutting production by 70,000 barrels per day as part of its spending cuts. But large oil companies like BP are well capitalized and can withstand current conditions, albeit, their share prices will take a hit.
Smaller shale oil companies will not be as fortunate.
The Ugly: Wacky Tobaccy
I’m still unconvinced that this last story isn’t an April Fools’ Day joke. But it was reported by Reuters, Bloomberg and MarketWatch, so…
British American Tobacco PLC (NYSE: BTI) announced today that it’s working on a COVID-19 vaccine. Yes, the maker of Lucky Strikes and Camel cigarettes is making a vaccine for respiratory infections. Oh, the irony!
Utilizing “tobacco plant technology,” BTI’s Kentucky BioProcessing division reportedly analyzed the coronavirus’s genetic sequence, developed an antigen and placed that in tobacco plants to develop a vaccine. I’m pretty sure this is how all sci-fi horror and thriller movies start.
BTI’s tobacco-based vaccine is already in preclinical testing. If those tests go well, the company says it can deliver between 1 million and 3 million doses a week.
On one hand, this is really good news on the COVID-19 battle front — if the vaccine works. I mean, if we can grow cures for viruses in tobacco, Kentucky could save the world! (Can I smoke the vaccine?)
On the other hand, when tobacco producers develop vaccines for respiratory infections, I can’t help but think we’ve jumped the shark on vaccine speculation in the market.
Today, I want to hear from all the buyers out there. Yes, I’ve seen your emails come in — I know you’re out there, buying up a frenzy!
I commend your bravery in the face of market peril. Yes, while Great Stuff has recommended to stick with safe havens, we know that irrational markets can make even the most stoic investor, well, irrational at times.
Not to mention, for a shrewd value investor out there, it’s raining deals and bargains.
So, where are you discount-hunting these days? What sector, trend or market are investors missing out on? Let us know in today’s poll:
Great Stuff: What’s Shaking in Stimulus-ville
As Tim M. highlighted in an email last week, “Biggest thing in the relief package is the loans for small businesses to cover their entire payroll for 2 1/2 months.”
Yes, small businesses saw a rare victory with the recent stimulus bill. They might not make out like Wall Street bandits, but the real relief in the relief package hits deep in every local market … in every local community … in every state nationwide.
First off, thanks for writing in, Tim!
I don’t have to tell you that it’s a tough time for any business owner, large or small. But the flexibility with business loans to help out payrolls, why, it brings a smile to this cynic’s face. (Mostly because those small business loans are going to help save my local micro brewery!)
Remember what I mentioned above: With the right facilities and capabilities … with right blend of creativity and rational … a well-run business can get by.
(Not sure how to tell a diamond in the rough from a dud in the scruff? You might want to click here pronto!)
Now, it’s not just small businesses like your local brewery and the donut shop down the street that are struggling to pull through. (I swear, a world without local craft beer isn’t a world worth living in.)
Think — The U.S. just had a decade plus of startup after startup wanting to be the “Uber of this” or the “Netflix of that.” So, it’s a tough time in the private funding tank, too, as Shark Tank investor Barbara Corcoran told Yahoo Finance this week.
“The smart ones are shifting their models, they are getting more creative,” “…but the great majority of investments I made, I don’t expect them to make it honestly through this trough…”
One of Corcoran’s “smart ones” includes Cousins Maine Lobster, a food truck turned delivery mobile.
Imagine walking out of your isolation chamber, mystified by the drive-by aromas of lobster trucks rolling through the block. (No wonder Domino’s Pizza Inc. (NYSE: DPZ) is seeing sales drop. I mean, lobster pizza? Your move, Domino’s.)
For me, this is the light at the end of the tunnel. (No, not delivery seafood … perish the thought.)
After we make it through this crisis … when we “get our life back again” … prepare for the roaring comeback of the American small business. The hardworking, passionate American spirit will not die … it’ll just get creative.
On-the-spot innovation — It’s the American thing to do.
Until next time, be Great!
Joseph Hargett
Editor, Great Stuff