After
suffering one of the most volatile weeks in years, and the biggest weekly loss
in almost 2.5 years, a lot of investors are left wondering how bad is this
going to get. While the S&P is
only down 5.5% from all-time highs a couple weeks ago, it is still the largest
drop from peak to trough in years and the pace at which we dropped is quite
concerning. Looking at the Nasdaq,
the situation is even worse, down more than 6% from all-time highs. Unless you have a very conservative
portfolio or hedged your positions with put options, you are probably in worse
shape that the indices. On Friday,
the semiconductor stocks all gotten a major beating after chipmaker, Microchip
Technologies came out and said that there is a correction going on in the
semiconductor space. That sent big
names like Intel, Micron, NXP, Taiwon Semiconductor and almost everyone else in
the sector down more than 5%. The
biggest issue I have with that is every investor in the world was listening to
what a tiny ($7B market cap) company that was flat for the year,
underperforming competitors by more than 30%, has to say more than what Intel
said a few weeks ago, that there isn’t a slowdown coming. With crude oil falling to the lowest
levels since July 2012 on weak global demand, energy stocks and transports
continued to collapse on Friday, with names like Trinity Industries, Conoco
Phillips, Delta and Southwest Airlines, Caterpillar, Exxon Mobil, and many more
falling into correction or bear market territory.
There
are two ways to deal with this market right now if you are not able to buy/sell
options. As long as you have a
long-term outlook and investment time horizon, there’s nothing to worry about
and this should be viewed as a buying opportunity. While I wouldn’t necessarily go in and buy everything right
now, I think there are some great opportunities to get stocks on the cheap and
you should have your shopping list ready to go. Tech stocks like Google, Microsoft, and Facebook are all
oversold, as are the chipmakers that I previously mentioned. Transports like Trinity Industries
which builds railcars for transporting crude oil across the US, should not be
down 31% in the last few weeks…that is a buy, as are the big oil and gas
stocks. On top of a possible
recession in Europe, the Ebola virus has really beaten down airliners like
Delta, Southwest, American and United Airlines. Those are all long-term buys as well.
The
second way to deal with this volatile market, is by buying low beta names…that
is, stocks that have low volatility and won’t move as much as the broader
market. Names that have held up
very well in the last few weeks and even rallied are utility stocks that pay
dividends of more than 3.5%, like Exelon (EXC) and Consolidated Edison
(ED). Telecom companies like
Verizon and AT&T, paying more than 4.5% to wait, are also good plays here
because their dividend acts as support for the stock. Another stock that has done really well is CVS. While it’s trading near all-time highs,
there’s still more room to run.
The last stock that you can own in this market is one that really just
trades by itself and doesn’t really move with the broader market, Apple. The tech giant has outperformed the
Nasdaq by about 6% in the last three weeks, dropping only about 1%.
So
there you have it. Hopefully you
have cash on the sidelines to put to work in stocks that you have been waiting
to buy at a discount. If you’re in
for the longhaul, buy high quality stocks that have been beaten down because of
profit taking and investors running scared. If you’re in for the short-term, look for low beta names
paying big dividends. Keep your
eye on the S&P this week. 1905
is the 200-day moving average and has been significant support for a couple
years. If the S&P can’t hold
that level this week, then will absolutely be more downside coming. Hedge Funds are getting margin calls on
some of their long futures positions, which means they are selling the
positions they have gains in. That’s
why I like buying those stocks that shouldn’t have dropped like Google,
Facebook and Trinity Industries, because I believe they will be buying them up
again going into the end of the year.
My current positions: Long
Ford (F), Gilead Sciences (GILD), Starbucks (SBUX), Macy’s (M), Boeing (BA),
Google (GOOGL), Facebook (FB), Coach (COH), Citibank (C), Delta Airlines (DAL)
Biogen Idec (BIIB), Whole Foods (WFM), Wells Fargo (WFC), General Motors (GM),
ConocoPhillips (COP), Kinder Morgan (KMI), Time Warner (TWX), Palo Alto
Networks (PANW), Twitter (TWTR), NXP Semiconductors (NXPI), and Lockheed Martin
(LMT).
Jeff Lewison
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