Yippee America's going to be open for business. Time to go on the offensive and buy the offensive stocks. Right?
Not so fast. There's a new America, and it's not as investible as the old. Or, at least many parts of it are not, and I don't think it's going to start falling into the Gap (GPS) or booking a Carnival Cruise (CCL) or going to a Live Nation (LYV) concert.
Look, it's a gradual opening and I think it's a terrific thing, but I believe we are confusing flattening the curve with a sudden decrease in joblessness or a boost in wealth, the things that truly drive a stock market.
Moreover, I do not see sudden loan growth or even timely loan repayments and a paying of mortgage checks that have been skipped for a couple of months now.
No matter, Monday many stocks of companies that had been given up for dead roared back from the crypt.
I get that.
We are getting further along in the pandemic and there is a sense that it is time to go back to roll up the sleeves and get things done, aided by the $1,200 check you just got from the federal government. But are people buying the right stocks if they are predicting a robust rebound from pent-up demand and a sense of cabin fever, even if they face an uncertain employment future?
Let's go over the day's the big gainers to see if they made sense. First is Kohl's (KSS) , and I am sure it can enjoy a short bounce at is opens up. Why not? It's had nothing coming in. The issue for me, though, is that you lost your primary reason for owning the stock, its bountiful dividend. Worse, I think that people learned to live without Kohl's during this period, accepting that they need from Target (TGT) and Walmart (WMT) or Amazon (AMZN) . Worse, the inventory it now has most likely isn't right. I am sure they have to dump what they had, which is terrific for TJX (TJX) and Burlington (BURL) , two winners in the Covid world. The downfall of a department store chain has often started with a sampling of a competitor. Oh boy, has there ever been sampling.
Second is PVH (PVH) . I am drawn to this one because Manny Chirico has built a worldwide empire of Calvin Klein and Tommy Hilfiger, but it's hard to try to figure out where the momentum will come from. PVH needs a back-to-school season, and I don't know if there is going to be one. I also think there is too much inventory in the system. The best I can say? It's bottomed.
Third is a tough one: Simon Properties (SPG) . This mall-based company, which is buying rival Taubman (TCO) , has the best reputation as an operator and, even more important, as a dividend payer. I don't want to dismiss the ability to continue to pay a large distribution, even as it yields 14.5%, surely a red flag. But CEO David Simon, who will forgo his salary for as long as the pandemic continues, has paid out more than $33 billion in dividends since coming public and that's an astounding record. How can he get enough rent money in? Won't he be stiffed like so many other real estate investment trusts? Yes, he will have bankruptcies. Yes, there will be defaults. But the stock has been cut in half and I don't think his business will be cut in half when America opens.
This may prove to be a stretch, but I want to bet with a CEO who waives his salary and is incredibly vested in being the last mall man standing. I would love to have Simon on "Mad Money" to describe how he will make that Taubman merger work, given that it took place right before the pandemic really hit home. Understand that this is a bet on David Simon, the man, not Simon the properties.
What's really happened in this country since the lockdown? What drives our belief that we will go back to normal? Hope. But hope is not a strategy for your money.
Fourth, is one I am truly worried about, Gap. It just re-financed at a much higher rate and its truly becoming a chain whose time has passed. I just don't see what it has to offer that is special or different or yes, necessary. There have been so many management chances and so many different corporate strategies that I can't believe they can keep the talent they need to be able to stay current in a cutthroat world. I don't want to own this one. You are getting a chance to sell.
Fifth, two years ago a committee of the board of directors of Nordstrom (JWN) rejected an $8.4 billion bid from the Nordstrom family as being too low. It's worth $3 billion now.
I think that there's a place for Nordstrom. It has a last-man-standing department store feel and that's worth something. But is it worth more than $20 now? I think that it's going to have a slew of horrid numbers and, frankly, it was not doing well before the pandemic. It was getting crushed. Why should it do well now when its prices are high and there are plenty of alternatives to what they sell. I do think that Rack, its off-priced business, might be the savior here. I think you could see a 20% move here and then skedaddle.
Sixth, Tapestry (TPR) is a tough own here. It's another like Nordstrom, that's been headed south for ages and it's got a raison d'etre problem. I think it could have a bit more of a bounce, but I don't have a reason to own it.
Seventh, L Brands (LB) . Forget it. Unless it can force a sale of Victoria's Secret to Sycamore, it can't make up the downturn of that once hot chain with the Bath & Body Shop. I would not speculate on it.
Eighth, Hanesbrands (HBI) I think is overdone. This is profitable company with a good online business. No, I am not going to recommend it just because it is making gowns for personal protection. I just think that the free cash flow is underestimated and I would bet it is a legit winner in a re-opened economy.
Ninth, Live Nation, is a stretch. I do believe that crowds are the bane of Covid's existence. Some business, like cruise ships, I believe are all in fingers-crossed mode. Live Nation is betting on feckless youth. There are enough out there to fill some halls. But not enough. I think it bounces. You sell.
Finally is MGM Resorts (MGM) , and I think that if you want to buy a casino, the one that has really thought about this, and how to open safely, is Wynn (WYNN) . That's the safest, which therefore makes it the best. I don't want to own any casino stocks, because they need crowds and crowds are what Covid feasts off of, so be careful. I wouldn't go there.
What should you buy? What's worth buying not for a bounce, but for investment? I think, sadly, that Covid's going to be with us for sometime. I think there will be flare-ups and disappointments and backfires as we don't have the testing or the contact tracing or the masks that are all needed to open up without incident. What's really happened in this country since the lockdown? What drives our belief that we will go back to normal? Hope.
But hope is not a strategy for your money. That's why I think the better way to invest is the way we have been investing for Action Alerts PLUS, a bet that there are many winners, still, but they aren't based on hope, they are based on reality.