Investing for the Long Term: Time to be Wary
I have separated the Investor section from Weighing the Week Ahead. Last weekend I described my intention to highlight investment ideas for long-term investors. I can do it better in a separate post, as I hope you will soon see.
I am going to include more of my own commentary on each idea. I will cite only ideas that are well developed and could be a good fit for some investors. I hope to add value in three ways:
- Each idea will get a “matrix nomination.” This is an effort based upon my Great Reset idea – focusing on what will work on the “other side” of the recession. You can see past research or become a part of the project by signing up for a free membership. I will continue to disseminate results in post like this one, and you can help. Here is the current version of the matrix.
- Research on sectors will help us place them in the matrix. In the most recent Great Reset survey, I asked respondents about how quickly certain businesses would rebound. While I covered several time frames, the one-year period is good for this purpose.
In my most recent report I included the analysis of a typical restaurant stock. Helped by these results, I could ask whether revenues and profits would rebound quickly enough for the business to survive and to justify the current stock price. Readers can probably draw some good conclusions just from this single table.
- I will add some comments about how I might use the investment idea in one of my several programs. Others certainly might reach different conclusions!
This Week’s Ideas
Chuck Carnevale suggests OGE Energy Corp. (OGE). He points out that utilities can be stable in a low interest environment. The yield is an attractive 5%. A recent price correction has created a reasonable entry point. He provides his typical data analysis in support of this thesis.
I agree, but I am not excited about the valuation. This looks like a B2 stock. It is doing OK and will continue to do so in the absence of inflation and higher interest rates. Since I do not anticipate a price rally, it is a good candidate for the covered call program.
Peter F. Way argues Chevron Now A Better Buy Than Exxon Mobil. He draws upon his analysis of market maker behavior to compare the relative attractiveness on a risk/reward basis. His forecast period is limited to about three months.
This looks like a B1 choice – unattractive now but improving with the global economy and auto use. I would consider it as a candidate for my covered call program, but it is less attractive as a core holding. Perhaps in a few months.
Hoya Capital Real Estate concludes: Homebuilders: Clear Signs of V-Shaped Recovery. Their analysis cites demographic trends, low housing supply, and near-record lows in mortgage rates.
I agree with the analysis and have over weighted this sector. I have it rated as C2.
William Stamm likes Clorox (CLX) calling it “a good business with a high price.” He mentions the yield of 2.2%, past outperformance, and success during the pandemic. He says that it “is a buy for the conservative income and total return long term investor with the present entry price a bit high.”
I like William Stamm’s work, following him and citing him frequently. This is an A3 stock, driven to a high price from the pandemic. Too rich for me, even for a conservative program
Watch Out For
Bankruptcy from American Airlines (AAL). (Lance Brofman). “Just about everything that can be bad about any business is present with airlines.”
Will Southwest (LUV) be the first to recover? The argument is that it has the cash and a better position than other airlines.
Our first Great Reset survey showed dismal prospects for airlines. It will be a long time before people want to undertake the risk of flying. When it happens, it will be on flights with reduced capacity. This is an A1 in the matrix.
Carnival Corporation (CCL) has announced a voluntary suspension until September 15. Stone Fox Capital summarizes the amazement:
While the airlines are cutting daily cash burn rates and have visibility to revenue growth by September, the cruise lines are still burning cash full speed ahead. Every day the cruise ships are docked at port, Carnival loses over $20 million and the date to reach cash flow break-even gets pushed out.
I agree. This is another A1 sector. The question is whether it will ever return.
Sell Kraft Heinz Stock, Says Goldman. More food is being consumed at home, but will KHC’s market share increase last?
I agree. This is an A3 stock that can hang on for a bit longer. It is OK to own if you sell calls against it, as I do.
There is plenty of time for the long-term investor to find great choices at good prices. The emphasis right now should be on avoiding mistakes.