Is Now a Better Time to Buy Than During the Covid Panic Low?

We all know now that buying stocks in March 2020, at the height of the Covid-shutdown panic, was the right move. Fortunes were made by those who ignored extremely bad news and purchased shares on the basis of what they'd be worth as things returned to normal. The greatest gains came from buying smaller-cap companies or travel-related names that were absolutely crushed for obvious reasons. During market panics, investors can't de-risk fast enough. They often dump everything by simply going to cash. Mutual funds and actively managed exchange-traded funds don't do that. Instead they eliminate lower quality stocks, while loading up on safer blue-chip names they know will weather the storm without risk of survival. They also tend to hold onto dividend-paying stocks while lightening up on, or exiting, non-yielding shares. The net effect of those factors means big-cap, blue-chips fall less than secondary names. The chart below illustrates what happened in the early days of the Covid-crisis. The Russell 2000 went into free-fall, slipping from high relative strength to its most oversold relative strength in decades. Once the bottom was in, however, those same unloved stocks made enormous rebounds. From March 23, 2020 through the spring of 2021, the Russell 2000 far outshone more conservative issues. Many individual small-cap names went up many fold over just six to 12 months. It is not surprising, then, that the RUT has been churning since early 2021 after such a huge run-up. It did hit a new all-time record on Nov. 8, before crashing significantly since. Post-Thanksgiving selling drove the relative strength of the Russell 2000 to its lowest level since March of 2020. In many ways this low in small-caps presents a much better entry point than it did 21-months ago. Why do I say that? In March of 2020 much of the economy was in a government mandated shut-down. Physical locations of businesses that were deemed non-essential were closed. Hotels, airlines, resorts, cruise ships, shopping malls and many other industries were bleeding negative cash flow while shouldering costs while generating little to no revenues. Buying in the spring of 2020 required taking on the risk of how long those conditions would persist, and even the possibility of bankruptcies. Today, though, most businesses are operating pretty well. Online sales have blossomed. Adjustments were made and many companies are now posting all-time record profits. A perfect example of this came on Thursday, when Signet Jewelers put out its fiscal Q3 report. Those brave enough -- including me -- to have taken positions in 2020 near the lows were able to buy all they wanted of SIG for under $8. Just before the recent market retracement SIG changed hands near $112. Signet's 21-month move from low to high represented a potentially life-changing 1,899% gain, plus dividends. Better still, at its Thursday 9:52 a.m. price of $86.51 SIG was offered at what now appears to about 8.2-times the mid-point of this year's newly revised estimate of $10 - $11 in fiscal 2021's EPS. Back in 2015 SIG established an all-time high of $152.30 on final EPS of $7.45, a P/E of 20.5-times. What does it mean when recent days' action has sent the major indexes up sharply in the morning, only to close way down at 4 p.m.? What does it mean when 90% or more of all shares fall in tandem? It suggests strongly that stocks are temporarily disconnected from any fundamental valuations. Investors with a clear sense of what companies are actually worth can keep cool heads and take advantage of irrational movements. If stocks inexplicably rally sharply, it can be a good time to sell covered calls or take short-term trading profits. If great results like Signet's, Caleres , Children's Place and G-III Apparel don't reflect outstanding numbers smart investors should be buying shares or shorting puts. The incredibly oversold condition of the Russell 2000 suggests we're now in the midst of one of the best buying opportunities in years. You only get so many chances to own superior stocks at rock bottom prices. Don't waste them. Be bold by going with unloved shares, at bargain valuations, rather than safety stocks at expensive ones.

Is Now a Better Time to Buy Than During the Covid Panic Low?

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