Do you really want to be a seller on the worst day in two years? Do you want to get out of stocks when the Dow Jones industrial average, S&P 500 and Nasdaq are nosediving?
Like so often the answer is, it depends. It depends on several factors:
- Do you have enough cash to buy something, especially an index fund, such as the S&P 500? Or would you have to borrow money to do so. If you would have to borrow money, then the answer is no. You can't buy. You need to sell on any lift and reposition with some cash so you are ready for another bad down day.
- Do you need the money in the near-term, say the next year to 18 months? If you don't and you have cash, and you haven't bought anything, then I think you have to start tomorrow if the market is down again.
- Do you understand that there could be more bad news ahead that could move the market down again? Why not? We are not oversold by any means and while we are having the worst day in two years, it's difficult to call this a tremendous buying opportunity.
- Do you mind getting the bare minimum on a CD? If so, I can't really help you. Otherwise I would suggest that tomorrow you buy a utility fund, or a fund that accentuates dividends, because even if the stocks are high, they represents bargains vs. bonds.
- Ask yourself: Do you mind owning individual stocks because the best values are in individual stocks, not the indexes, because the indexes are experiencing torrential selling, including stocks that shouldn't be sold.
And what are the bargains in this market?
I want, first, to emphasize that given the interruptions of supply chains -- as we are learning we are far too dependent on China, especially when it comes to pharmaceuticals -- we have to be careful about what companies cannot be bought and are just too third-rail to touch.
Let me give you some examples. As much as I would love, for example, to tell you to buy the stock of Apple (AAPL) , I think you could get a better entry point in short order as there will be analysts who downgrade the stock on concerns that estimates have to come down, both because of supply chain and because of retail. We have gone over the parts suppliers endlessly, but you need to worry about Cirrus Logic (CRUS) , Skyworks Solutions (SWKS) , NXP Semiconductors (NXPI) , and Qualcomm (QCOM) to name a few. Those are just in the darned blast zone and are not low enough, because they just rallied on the peace treaty that was phase one of the China trade agreement.
Travel and leisure are going to be under tremendous pressure. Monday is really day one of the weakness in Carnival (CCL) , in Royal Caribbean Cruises (RCL) and Norwegian Cruise Line (NCLH) . How in heck were they able to stay so high last week after the tragic debacle that was the Diamond Princess of Carnival? Now I have absolutely no doubt that cruise traffic will eventually return to be robust. But can we at least give it the same 18 months that Chipotle Mexican Grill (CMG) had to go through from its last scare? I think that the Macau casinos, Wynn Resorts (WYNN) and Las Vegas Sands (LVS) are nightmarish, but I think that Penn National Gaming (PENN) could be very good, especially with the tie-up with Barstool and the domestic nature of its business.
Airline traffic will be down so much that you have to expect another round of estimate cuts. Stocks do not rally on the original estimate cuts. I wouldn't touch a hotel stock, especially one with a lot of exposure to China and Chinese tourists. Those need to be sold even now, with them down a great deal. They may not bounce back as you think they should. Travel's just bad news. Until this weekend I didn't see nearly as much risk going to, say, Milan. I went last year for fashion week and it was fantastic. People from all over the world go to Milan fashion week, but it is heavily skewed now toward Asia, the Chinese.
I debated mentioning that, except you could see that the event has become the vacation for visitors from mainland China. Plus, Milan is deeply involved in the Belt & Road initiative of China, which is about projecting power via construction of infrastructure.
Fortunately, much of software, particularly cloud-based software and social media, have not been able to penetrate China. That's why they might be the first to reach for tomorrow.
Lots of people seem to want to own the oils. I have no idea why. My charitable trust owns BP Plc (BP) . Why? Solid and growing yield. That's terrific, but it is not enough in a market where environmental concerns are paramount. These stocks are pariahs. And it is only getting worse.
The industrials were still rallying into this maelstrom as recently as last week. I think you can own one, but you are going to take a beating on it.
Final problematic group? The banks. The banks are never the place to go when there is a big sell-off and this time is no different. And the reason this time? The yield curve. Treasuries are getting crushed and banks, once again, are going to have to rely heavily on fee revenue. That means numbers are going to get cut, and I reiterate, number cuts mean sell.
With those parameters what stands out?
First, I like the staples. They are hanging in bit when the futures bring down things you need to be considering something like a Coca-Cola (KO) or a Mondelez International (MDLZ) , both of which reported excellent numbers. The yields can help save you here.
Second, the drugs are very good here. I hold out hopes for Gilead (GILD) to offer an acute cure. Why not Merck (MRK) with Keytruda? Wouldn't it be something if Eli Lilly And Co. (LLY) came down or if you saw Johnson & Johnson (JNJ) at $140? I am not as sanguine about the health insurers, given the ascendance of Bernie Sanders at the top of the leader board in the Democratic Party.
Third, I like the utilities, even as they are up so much. Consider a Dominion (D) which hasn't rallied as much as others. You know I like American Electric Power Company (AEP) and Consolidated Edison (ED) -- but holy cow have they run.
I wish I could be optimistic about more groups, but my feeling is that if I give you more I could run into number cuts. I truly like, for example, Nike (NKE) . But if Europe slows down, then I fear there's a second wave of number cuts after China. I like the rails, but they rallied so much. Can I recommend a Union Pacific (UNP) down only 12 from its all-time high with a lot of traffic coming from Asia? I think it is still too early to buy fin tech, because so much of it is involved with consumption and consumption could slow down.
I know I still like gold and gold isn't done. What great protection that is.
There's no hurry. Take your time. Don't get aggressive. And if you have no cash? I can't do too much to help you unless you do some selling in the groups I said I don't like and swap into the ones I do.