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  1. Home
  2. / Investing
  3. / Stocks

My New Multi-Group Portfolio Strategy for Trading the Pandemic

How has my book evolved since the Fed and Treasury rode into town? Here's how.
By STEPHEN GUILFOYLE
Apr 16, 2020 | 12:16 PM EDT
Stocks quotes in this article: GILD, MRNA, TDOC, CLX, JNJ, ABT, MSFT, ADBE, CRM, ZM, ZS, JPM, WFC, LMT, RTX, AMZN, NVDA, AMD, CAG, KHC, PEP, FB

The dictionary describes "evolution" as the gradual development of something, especially from a simple to a more complex form. Hmm.

Back in the early days of the coronavirus pandemic, or rather the early days of its impact on the U.S. economy, readers may recall that I made some drastic changes to my main portfolio, and had created a three-pronged approach consisting of a "Virus Group," a "Revenue Group" and a "Rebound Group."

The groups, in aggregate, did not completely defend my book from the market meltdown that took place, but did, in conjunction with a move toward the highest cash levels that I had ever been at, allow for market outperformance.

Over the time that has passed since then, there have been many changes made to these "mini-portfolios" as some ideas worked well, others not at all, and most importantly, the Federal Reserve Bank came riding to the rescue of so many corners of the economy that were screaming out for liquidity at the time. Not to mention what the Treasury Department has done as well.

Still, fiscal and monetary support can only do so much before damage becomes more than temporary. Already, roughly 22 million American workers have filed for unemployment benefits over just four weeks, which basically unwinds all of the job creation of both the Obama and Trump years combined. This does not take into account the many firms that have gone the route of wage contraction rather than headcount reduction. I don't even have a number for that, but I know plenty of folks making less money.

So, how has my book evolved? How does one re-position oneself for a gradual rollback of this economic shutdown, fully aware that danger lurks behind every shadow?

Even with the support of policy, there can be no solvency without organic cash flows of some kind, some velocity of transaction. This is true at the federal, regional, corporate, household, and individual levels.

Slightly more optimistic? Yes. More "risk-on"? Certainly. Back to normal cash levels? Not so fast, my friends.

Virus Group

The early drafts of these groups were simple, and created in some haste, as I had never dealt in my life with a government mandated economic shut-down, nor had anyone else. The "Virus Group" in the early days included companies that were working on either treating the virus or finding a vaccine.

Gilead Sciences (GILD) , and Moderna (MRNA) were early entries -- both are still on the book. Moderna has done well. Gilead is up over that time, but far less so. After seeing a couple of clinical trials cancelled in China, for the candidate known as remdesivir, it is possible that I jettison this name on the next "up day."

Two other names that had been in this group almost from the beginning are Teladoc Health (TDOC) , which has been an absolute home run, and Clorox (CLX) , which could be called a solid double. We pretty much see a pop in TDOC every time anyone mentions "tele-health" anywhere in the media. Clorox could sell more product if anyone could find it. Most folks I know have been trying to buy disinfectant wipes for over a month without success.

Other adds to this group that came later have been Johnson & Johnson (JNJ) and Abbott Labs (ABT) for obvious reasons. One seems the well-funded leader in the search for a vaccine, and the other the most able to make broad testing both for the coronavirus as well as the antibodies that it creates available. This is the one thing that makes re-opening the economy in any way, shape or form even remotely possible. Since entry, JNJ is close to flat (but did raise the dividend), and ABT has been a nice-sized winner.

Working Remotely Group

This group was not an original, but was created shortly thereafter. Of course, there were already a number of very solid Sarge faves already in the portfolio that fit the bill, such as Microsoft (MSFT) , Adobe Systems (ADBE) and Salesforce (CRM) .

Zoom Video Communications (ZM) was an early and successful add to this group, but was pared from the portfolio as questions swirled over security. Yes, the shares have rebounded since, but I don't need the headache. The funds created through the sale of Zoom were split between adding to Microsoft and re-initiating Zscaler (ZS) .

Fiscal Group

Who benefits from fiscal stimulus? Obviously, the airlines have in the short-term. I have steered clear of this group for quite some time. I am not close to thinking about getting involved even with bail-out money on the way, and will not be until I see demand for what they provide.

I did re-initiate positions in a couple of banks as the yield curve steepened just a bit. Having been agile enough to completely miss the selloff in the financials, I was a bit early getting into JPMorgan Chase (JPM) and Wells Fargo (WFC) ahead of earnings. Both positions are down small for now.

As for defense, in times of deficit spending these firms are never left out, and I don't think they will be, as there may be nothing more important than showing our adversaries that they probably should not screw with us while we are down.

Readers likely know that I have been a perma-bull in Lockheed Martin (LMT) , and that I jumped right on Raytheon Technologies (RTX) after the merger with United Technologies. That trade is already up 25%.

There will be infrastructure build-type plays once the next phase of fiscal support starts to look like a reality. It's early, but that's when your construction names and your 5G plays may start to look smart.

Rebound Group

Just how great has Amazon (AMZN) been? I mean, this is due to greatly increased demand to e-commerce as well as the company's stated intention to add headcount while everyone else is shedding payroll, so this is not really a rebound play, but a home run and a half nonetheless.

I also had Nvidia (NVDA) and Advanced Micro Devices (AMD) in this grouping, but these have really become as much "Working Remotely" plays as they are "Rebound" plays, as certain folks needed to add equipment and others, with more time on their hands, seek gaming as a form of entertainment.

One Last Thing

For those who followed me into defensive, or pantry-type names given the panic of the times or seeking the safety of dividend-driven revenue, keep in mind that many dividends can no longer be considered safe. You probably already know that.

As for the pantry, should the economy re-open, well, if you have 75 cans of ravioli in the garage next to 40 boxes of macaroni and cheese, you're probably not going to buy anymore for a while. That means that perhaps long positions in names such as ConAgra Brands (CAG) , Kraft Heinz (KHC) , and PepsiCo (PEP) have served their purpose. They have shielded the portfolio from volatility to some extent. I would not completely exit them, but there's no harm in getting a shave and a haircut.

Oh, yeah, that reminds me. I see you on Facebook (FB) complaining about your hair. Just cut it. Gee whiz.

(Abbott Labs, Amazon, Clorox, Johnson & Johnson, Microsoft, Salesforce, JPMorgan Chase, Facebook, PepsiCo and Nvidia are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells those stocks? Learn more now.)

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At the time of publication, Guilfoyle was long GILD, MRNA, CLX, TDOC, JNJ, ABT, MSFT, ADBE, CRM, ZS, JPM, WFC, RTX, AMZN, NVDA, AMD, CAG, KHC, PEP equity.

TAGS: Dividends | Federal Reserve | Investing | Markets | Stocks | Trading | Coronavirus

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