Who's safe. Who isn't? Who needs help? Who needs a miracle to stay in business? Who's already lost.
That's what it's coming down to in the age of Covid-19. That's also what's impacting stocks and that's what's making and losing you money and before you pick from the rubble.
Let's go over what you do if you are trying to buy stocks after a giant decline like we have had.
First, you have to recognize that the market, for all intents and purposes, right now isn't working well. The swings are sign of unhealthiness. They are indicative of how people are scared and there are far fewer players and far too many machines for stocks able to handle the impact. Plus you have hundreds of exchange-traded funds pulling and pushing stocks in an unseen fashion. That's the bad news.
The good news is that you can use these wild swings to your advantage by identifying companies you want to own and then buying their stocks in stages. That way, if you buy some of a stock when the market is up 900 points, as it was in the morning and then it plummets to negative territory, you have a better basis. In a broken market like this one, where things move so fast that sellers can't be lined up and then buyers disappear, you have to be willing to own and more and more on the way down. If you are going to buy a stock and then not think it is cheaper as it goes down, you need to sell it now. This is a market where you need rock solid conviction, so when your stock goes down you regard it as an opportunity not a curse. A swing from up 945 to zero, as nutty as that is, must be viewed as a gigantic sale of merchandise, good and bad, and you have to buy the good ones.
How can you tell the wheat from the chaff? You have to try to answer the puzzle of what kind of downturn do you have.
I have said over and over again that this is a biological crisis, not a financial one. Yesterday, though, it turned into an oil and biological crisis, with the collapse of oil prices. We are the world's largest oil producer because of all the oil we produce by fracking and the Russians don't like it. They are trying to knock us out and the Saudis aren't helping. At these prices, many of the oil companies we know will go under. If the prices come back, they will be fine.
But how can they come back if the Saudis start pumping at a rate of 12 million barrels a day, almost as much as we produce while the Russians try to flood the world with oil? We just don't have enough demand. I don't care about the 10% gain today. I don't think it is sustainable, and we are going to go over that when we go off the charts later on "Mad Money."
So lets do some elimination from the get-go.
In a biological crisis, you need to be worried about your health. The best way to preserve your health is to not go anywhere. The worst way is travel or go out. That means, to me you can't touch the entire entertainment, hotel, restaurant, retail, and airline complex until Covid-19 is solved. The good news is that it seems to have peaked in some countries like Japan and South Korea. The bad news is that's it gone nuts in Italy and Iran. Which are we? We don't know yet. We don't have enough testing kits to tell, a far cry from the South Korean drive through testing that has made people feel far more confident. The sooner we get those kits, the better we will feel and the more likely we will go out.
The president is actively discussing ways to tide these industries over: low-to-no interest loans for small businesses, sick leave pay so people aren't infecting others, delayed filing of taxes while waiving penalties and interest and perhaps even a payroll-tax cut. All of there can and will help. They are a sign that the president isn't just hoping for the best, he is preparing for the worst and so was Secretary of Treasury Steven Mnuchin, a man with solid credibility on the Hill and the business community, to help get this done.
I am encouraged, but it is not a reason to go buy Carnival (CCL) , American Airlines (AAL) , Darden (DRI) . The goal is to tide over small business, not help the giant companies, especially the national chains. You do not want to buy these stocks going into a possible slowdown or even a recession.
Then there's the oil patch. Today Occidental (OXY) had to cut its dividend. What a comeuppance, but it was not prudent after the reckless buy of Anadarko Petroleum last year. The stock rallied for its conserving the capital. But big deal. If you think oil is going to stay down here, then the whole complex should be avoided.
Now, you must understand that the market is bringing down the bank stocks over a belief, a false belief, that they will repeat the same swoon they experienced during the Great Recession. I think that's nonsense. I know, though, that their earnings would be hurt, which makes them a buy only when they hit high yield territory as they were last night. They are trading vehicles right now, and not much more, although some of them make darned good trades.
So what does work now that we have taken so many sectors off the table?
First, you can buy pharmaceuticals whenever they get to 3% yield. This happens in pretty much every swoon. Given that everyone's worried about a recession and rates are so low these just make plain common sense. Think AbbVie (ABBV) , which was down Tuesday after a good analyst meeting, because the crowd decided the Trump stimulus plan will beat back a recession.
And then there are the toughest ones, the secular growers where you are making a bet that they will grow no matter what. To me that means the cloud, companies like Adobe (ADBE) , Salesforce.com (CRM) , Microsoft (MSFT) and ServiceNow (NOW) . I like Alphabet (GOOGL) and Amazon (AMZN) . I think Facebook's (FB) ad numbers could be late but the stock is down low enough that it may compensate. These kinds of high growth companies will be able to outperform in a recessionary economy because they are used no matter what.
I have always favored the fastest growing tech in a slowdown. They bounce back quickly and become leaders of the next leg up, which we will while we cure Covid-19, which I am still convinced we will if we adopt my Manhattan Project plan of pulling all stops to do so.
I know that it seems like a small list, but accept the fact that until today, I had been adamant that only pharma and a handful of utilities worked. But now that we are further along and we see that the issues are about paid sick leave and perhaps bailouts to keep big entities alive, I feel better that we remain in a deflationary cul de sac and that's when tech totally shines.