Bottoms Up? 3 Buys.
“Don't bet on the end of the world, it only happens once and the odds are against you"
-Art Cashin (Director of Floor Operations, UBS Financial Services)
The Portfolio Performance
The portfolio is down -7.14% YTD
Our Benchmark the S&P 500 is down -5.15% YTD
If you've been in the market for the past year you probably don't need to go to Disneyland, this roller coaster market has provided all the ups and downs and thrills that anyone could every want. While the S&P 500 has remained in a tight trading range since April of 2021, the Stay Invested portfolio has been steadily gaining back our losses. Our investment in fertilizer maker Mosaic has returned a nice 79%+ profit. Our copper miner, Freeport-McMoran is approaching a 91% return, and the VanEck Oil Services ETF is now delivering over 26%. We have some big losers too, but these inflationary investment will help carry the portfolio for the foreseeable future.
In my February post the portfolio was down -14.68%, and at times even more. Today we've rebounded to -7.14% at the time of this writing. The companies where the portfolio is invested are mostly doing well, and the view into the future is still very bright. As the market has begun to digest all of the existing uncertainties I'm seeing places where I want to put money to work for at least a year or longer. Make no mistake, there are still huge risks floating around all over the world that every investor needs to heed, but there are always risks, we just have to navigate the best we can and never be invested for a short term flip.
What's The Big Picture?
The 'R' word is the first thing that comes to mind. Every day I hear another talking head, talking about a looming recession. Whenever the uncertainties in the economy and the stock market become overwhelming the default analysis is 'Recession'. I'm really tired of the conversation because it doesn't serve any great purpose. Recessions come and go, they're as common as can be and often are very good for the economy. Bull markets do not come with an expiration date, recessions do. Bull markets can run for years while recessions on average last a few months and the bottoms are pretty easy to identify. Let's just put the whole recession discussion aside for now and focus on the things where we have control.
"...Bull markets do not come with an expiration date, recessions do."
The U.S consumer is about 70% of U.S GDP. Think about that for a second. 70% of our $21 Trillion dollar economy is produced by just 199 million people in our population that's only 321 million. Per capita, the US worker produces an inspiring $58,510 per year of total GDP. The consumer wields a great deal of force on the economy.
Why do I bring this up? Consumer sentiment plays a huge role in how that mega economic force saves, spends and invests. Tracking consumer sentiment is a active sport for full-time investors. The consumer is spending on goods, buy Costco, Target, WalMart, Nike and the list goes on. The consumer is spending on travel, buy the hotels, airlines, resorts, casinos and travel sites. The consumer is saving and not spending, buy the banks, brokerage firms, housing companies. You get the idea, go where the wind blows. The problem is you can find yourself chasing the latest whim of the consumer. That's why we also want to follow demographics to understand the bigger long term forces at work. One of the best metrics I follow is negative consumer sentiment. Turns out Bank of America has long tracked this metric and has identified every bottom in the market and the subsequent rally that follows by measuring negative consumer sentiment. When the consumer gets too negative we see it as a contrarian indicator; meaning the consumer has gotten too negative and priced in more calamity than what is actually possible. That's where we're at.
Bottoms Up? I think we've seen the bottom
Stocks have now discounted more than a recession and institutional positioning in stocks have them holding more cash than they held in 2009. The reference to 2009 should still be fresh for those of us who were invested or trying to hold onto our homes in 2009. Consumer confidence is as low as it was in 2009. Retail sentiment is as bad as it was in 2009. Retail sentiment is the opinion of retailers about the future of their businesses. This sky is falling, calamity scenario is actually very bullish for stocks. If there is in fact wisdom in crowds, where is the consumer wrong?
Inflation is starting to create 'demand destruction', a process where prices have reached levels where the consumer is pulling a 'Reagan', "Just Say No". When that 70% says no to enough products and services we see 'demand destruction', or a lack of demand. So what does the consumer do, they put that money somewhere else. Because interest rates on savings accounts are so low, they will most likely follow the same pattern of the past decade and put more money into stocks.
Initial jobless claim are at the lowest level since 1969. WOW! New jobless claims are the lowest in 53 years. It's pretty hard to have a recession when everyone that wants a job, has a job. At the same time I see 10 million job openings. During 2020-2021 the U.S saw more new business applications than at any time in history. The dull NBA chart went parabolic at a time when nobody could find employees. That doesn't sound recessionary, it sounds like a siren call for hyper immigration.
Travel bookings for the summer are booming on all fronts, airlines, rental cars, hotels, cruise lines. America is ready for a vacation and to get out and see people. Even higher gas prices haven't been able to change peoples plans. That doesn't sound recessionary.
The bottom line is that it's really hard to have a recession when there are 10 million job openings and wages are rising. This may turn out to be a year when the economy outpaces the stock market.
Where to Invest?
The list below is from my February post. I still like all these names but many just got too expensive too quick. I do however see some places where I want to put some money to work. Logitech International, the maker of PC and gaming accessories looks very attractive to me. By the time you read this I'll take a starter position with a 25% nibble of a full position.
Logitech currently trades at about $76.50 with a P/E of about 16-17X and a forward P/E around 15X suggesting that management is looking for a little improvement in earnings. The lowest estimate on the street is $112, consensus is $123. The stock is trading down about 45% from its recent high having been sold off with the rest of the technology names. Bank of America came out this week with a $107 price target. While I have a $85-$90 price target, I like the fact that the most bearish estimate on the street is $112, making this an asymmetric investment (more upside than downside). Logitech is profitable and has very little debt, in fact I think too little. The market opportunity is large and growing. Video gaming in North America is now larger than movies and sports combined. While the CAGR for the gaming industry is a paltry 8-10%, Logitech stock could easily outperform and grow faster because of how oversold the stock has become. The company manufactures most of its products in China and has done a good job of preventing knockoffs, maintaining quality and keeping inventories available. When supply chain disruptions subside we should see Logitech delivering better numbers.
Bought 103 shares @ $76.44
This semi conductor company seems to be in all the right places at the right time. The company should grow about 45% this year and another 26-27% next year. I don't often add to a position when I have a gain, but in the case of Marvell I'm going to take another bite to increase the portfolios exposure to this well managed chip maker. Consensus is $96/share, I think it can get to $100, especially if 5G roll-outs pick up speed.
Bought 107 shares @ $73.54
Meta Platforms (FB):
The selling in Meta, formerly known as Facebook seems overdone. There's a laundry list of reasons to stay away from this company, but trading below its 200 day moving average has never been a good reason. Since we have a loss I'm taking this opportunity to lower our cost basis and give us a better position to sit on this one for a while longer.
Bought 91 shares @ $219.91
Mosaic (MOS) for their dominance in fertilizer.
Deer (DE) as a beneficiary of higher commodity prices.
Amazon (AMZN), Walmart (WMT), Costco (COST) and Target (TGT) for low prices and ability to navigate supply chain disruptions.
iShares TLT (TLT) is an investment that benefits from rising rates and bond buying.
SPDR Gold Shares (GLD) is an investment that invests in physical gold.
XLU an ETF that invests in utilities that is benefiting from rising energy prices.
McKesson (MCK) in the healthcare space as a sector neutral position.
Chevron, Devon, Marathon Oil, and EOG resources and the OIH our ETF of oil services companies. These companies have already rallied a lot but there may be some protection in these names for a few months as oil continues to hover near $100 per barrel.
Nvidia, AMD, Marvell, Qualcomm, Lam Research, Applied Materials, and ASML as the only maker of equipment that can produce the most sophisticated chips. The best semiconductor companies will be able to raise prices in this environment.
Northrup Grumman (NOC), Lockheed Martin (LMT) and Raytheon (RTX) as the best defense contractors to invest in as portfolio defense in an increasingly scary world.
Invesco Commodity Index (DBC) is an easier way to invest in a large market basket of commodities that will all see rising prices.
Keep Me Honest 2022
Russia will conquer Ukraine and integrate it into Russia by mid-year 2022.
S&P 500 will reach 4,800 by year end.
Standing Note to My Subscribers
I’m going to leave this note in place until I take action to telegraph what I’m planning to do. I’m no longer looking at selling the (GLD) gold position but I am still wanting to sell the iShares Clean Energy Fund (ICLN). We have enough cash in the portfolio that I don’t need to sell the ICLN positions yet. The ICLN provides global exposure to clean energy, whereas the CNRG primarily provides U.S.-based exposure to clean energy.
"Markets don't go to zero, Portfolio's do.
Buy quality, be patient...and look twice for motorcycles."
- Clay Baker
ENTER YOUR NAME & EMAIL ADDRESS TO SUBSCRIBE
Keep Me Honest 2022