We have nothing to fear but fear itself, and let me tell you that when it comes to the stock market, fearing fear is very palpable and very negative. I am not saying FDR was wrong in his first inaugural address. I am saying the stock market's an emotional beast and right now the beast is a bear, not a bull.
That's right, this is the most high-anxiety market I can recall since the great European crisis of 2011, although not as horrendous as 2008 when we had systemic risk to the economy, meaning the center might not have held, and the financial system was falling apart.
But in a classic example of what I am talking about, the high-anxiety moment was overnight when uber-investor George Soros said we could be in another 2008 moment. I want to point out he said Greece in 2011 was another 2008, so we have to caveat his called shots. Nevertheless, when the 24th-richest man in the world, according to the Bloomberg billionaire rankings, with $27 billion in personal worth, speaks, we can't dismiss him. You don't earn that kind of money being wrong all the time.
So what do you do?
Consider this your fear gauge survival guide, something that can frame your anxiety and make it so you don't feel so adrift and upset so you can make better decisions.
First, let's give in to our 2008 fears for a moment and say, "OK, it is that bad, China will spill over here and bring down our banking system and KO our industrials, a repeat of the Great Recession." I get that. The average S&P 500 stock is now 20% from its high. You can ask, "Are we beginning to be in a bear market?" but that's the definition of a bear market. Technically, stocks have been breaking down for ages with only a handful of, candidly, very overvalued stocks making the overall market averages look better than they are. Things are fragile indeed and we are now fighting the Fed, something that I told you made it impossible to think things could be as good as before when the Fed hadn't started tightening.
All terrible. All bad. All broken. Just like 2008 in terms of the way it feels, the way it acts. Again, fear, even imagined fear, causes people to sell. You can't tell anyone not to be fearful when things aren't so hot.
However, you can ask, what did work last time when things weren't so hot? How did you make money back then? The answer? You bought the stocks of what I called back then the Accidentally High Yielders, or AHYs, as my writing colleague Matt Horween nicknamed them. What's an accidental high yielder? It's a company that can afford to pay a good dividend that suddenly has ballooned into a big yield because the stock has fallen so much.
Now, let me make this real clear: The company has to be able to pay that dividend out of its cash flow. There are plenty of oil and gas companies that have big yields, but they aren't safe. There are other oil companies like Chevron (CVX), a good, solid company that's committed to its dividend, and yields 5%. But there are two reasons why I am not inclined to pick at it. First, the stock traded much lower last time China blew up -- it was $70 at the end of August and it is now at $83, this despite the fact that oil was at $40 and it is now at $33. That doesn't add up.
But what does? How about Verizon (VZ)? It's got a virtually identical yield to Chevron yet it has solid cash flows and I think is much more likely to raise the dividend than cut it. Now, 5% may not seem all that attractive, but remember the 10-year Treasury; a decent comparison is less than half what you get with the stock of Verizon. I like that.
What else? Pfizer (PFE). Here's a company with a stock that is just a point away from where it traded in that dreaded period back in August and it yields almost 4%. Pfizer's not only good for the dividend, but it is merging with Allergan (AGN), which will be spectacular for Pfizer shareholders. I think that would be a stock that would hold up under a Chinese-led onslaught. (Pfizer is part of TheStreet's Dividend Stock Advisor portfolio.)
How about some plays on a more liquid consumer? I think L Brands (LB), Walgreens (WBA) and Constellation Brands (STZ), all of which just today have reported excellent numbers, are places to go if they come in. L Brands had the best December in history. Constellation just raised numbers because of strong Modelo and Corona sales -- people do not cut back on beer, except maybe me, because I am on one of these rotten cleanses with my wife and it is driving me batty. Walgreens put up 5% comparable store sales numbers just today. I doubt any of these companies will be doing less business if Shanghai retreats to the level, 30% down from here, where the bubble first started. Earlier this week, I suggested buying the down-and-out Lululemon (LULU), and I feel even better about it now that the weather's gotten colder. (Allergan and Walgreens are part of TheStreet's Action Alerts PLUS portfolio.)
How can these companies put up good numbers? How about plentiful job growth and a lot of spare change saved at the pump, something the consumer is at last realizing may not be going away any time soon. No wonder even lowly Wal-Mart (WMT), down 30% last year, just went above where it traded in the last week of August 2015. It's very strong because the consumer's still strong.
I am acutely conscious of the fact that when you say, "These stocks worked back then," someone might just say, "Wait a second, Cramer's bullish." No, I am not. I am saying the market can create bargains as it goes down. There aren't that many. However, to say we are just beginning a decline after the average stock is down 20% seems a little glib and a little complacent. You have to work to find bargains, but some have indeed been created by this selloff.
Remember, I am stipulating that people are acting on fear, which is sending the market down -- fear of China, fear of the Fed, fear of earnings next week. And if the fears come true, I am providing ideas that worked last time the fears came true and the systemic risk was here, not China. I think they will work again.
