WASHINGTON –This column begins a series I’d like to call “A Journal of the Investment Plague Year, 2020.” That’s why today’s column, as promised yesterday, will feature some unusual investing ideas appropriate (I think) to consider during this latest bear market squall.
But before we get underway, let’s take a brief look at Mr Market, circa 2 p.m. ET Thursday, in roughly the sixth week of this Investment Plague Year.
Another Investment Plague Year day
For some reason, stocks are on the rebound Thursday, at least mildly so. It seems strange, because yesterday, investors experienced yet another sickening multi-percent loss in nearly everything that traded. That’s typical of today’s current bear market and makes it hard to plan for future investing, let alone get enthusiastic about it.
Stocks opened down this morning and remained pinned in the red for the better part of the first half hour of trading. But then they caught a mysterious boost and went positive. Until 2 p.m. at least, when averages began to dip down again.
As I write this column, the Dow is currently off 5.88 points (-0.01%). The S&P 500 counters that with a gain of 7.37 points (+0.31%), and the tech-heavy NASDAQ has just turned down by 5.56 points (-0. 09%). That rates as inconclusive. At the moment. Who knows where the roulette wheel will end up at Thursday’s 4 p.m. closing bell?
The reason for Mr Market’s fairly positive turn at approximately 10-10:30 a.m. was due to that guy our fake journalists love to hate, President Donald Trump. Our dealmaker President was on the squawk line with longtime CNBC correspondent and analyst Joe Kernan mid-morning. Subsequently, he told Kernan that he’d been working on something with the Saudis and Russia’s President-for-Life, Vlad Putin.
The upshot? Trump expected these two oil-sodden frenemies would soon cut a deal to trim production “by 10-15 million barrels.”
Crude oil prices took off like a shot, skyrocketing more than 15% on the news, even though nothing is signed in stone at the moment.
However, by mid-afternoon, traders and investors were back to obsessing over the expectedly monstrous unemployment numbers again. So, what had approached a 500+ point gain in the Dow quickly began to evaporate. So it goes with today’s market. Give me a good story, and I’ll counter immediately with a terrible one. “We’re all gonna die!” Until this stops, the current, wildly out of control trading action will not. That’s why 2020 is truly an investment plague year of legendary proportions.
So what’s an investor to do?
We may not have hit the bottom of this serial stock market crash. But it’s high time we explored some creative investing ideas. I’ve experimented with some of what follows, encountering some failures and some successes, but that’s the way it is when stocks are out of control. It will be easier going forward when we find a firm market bottom, but right now, things remain touch and go, and likely will stay that way throughout Q2 of 2020.
That means, to me at least, that things have gotten cheap enough for us to make occasional mini-forays back into the market right now. But we should make those forays small, because it’s likely that as we accumulate shares, we’ll be averaging down, not up.
Unusual investing ideas
Buying shares by onesies and twosies used to be an exercise for idiots and amateurs, because they’d end up getting eaten alive by trading commissions on such small lots or increments. But now, if a small investor keeps his or her accounts at a discount brokerage, commissions are for the most part a big goose egg. I.e.,zero, zed, nada.
So today, smaller investors no longer need to fear trading small lots, particularly if you’re dealing with monster stocks that are priced in hundreds and occasionally thousands of dollars per share. That’s a novelty, at least for me, as this is the first market crash I’ve experienced – including 1979-1981, 1987, 1999+ and, of course, the Great Recession of 2007-2010, depending on how you figure it – where I’ve been able to avoid those dreaded in-and-out commissions. That’s at least one advantage small investors now have in this annus horribilis, 2020’s epic investing plague year.
What I’m driving at is that it’s now economical to average back in to the market in tiny increments of 1-5 shares per trade. Which, over time, should average you in at or near the ultimate market bottom here.
As for me, I’ve started with a small target list of stocks that ought to do well when all the scare headlines are over – likely after the conclusion of Election 2020, but perhaps earlier. Accumulating tiny bits of stocks that look like eventual winners, share by share, is the way to get the best over all price here. But you have to keep a steady hand.
Some of the most interesting stocks are relatively obvious. Others are decidedly not. Let’s start with a preliminary list.
Safe, conservative and (relatively steady)
On the whole, the first of our unusual investing ideas is actually not that unusual.
Generally at this point in a lousy market, your best bets are conservative stocks traditionally paying high dividends. These include the old telephone companies, now media conglomerates, that now trade as part of S&P’s newish Communications sector; utility stocks; and REITs – providing that the latter actually own properties rather than originating or trading mortgages or mortgage-backed securities.
Since that latter distinction is something of a hairsplit, we’ll avoid looking at that latter category (REITs) for now, as some awful things can happen to the unwary in the current environment.
Unusual investing ideas in the Communications Sector
Which brings us back to the old telcos and utilities. As for telcos / communications companies, the best lookers right now are AT&T (trading symbol: T) and Verizon (VS).
AT&T has gone all in on media, so it’s the riskier but potentially more rewarding of the two. Verizon tried this, too, but failed utterly with it’s takeover of Yahoo! But, having mostly written this bad investment down, it’s a more pure wireless company with interesting offshoots.
AT&T’s dividend yield is 7.42% annually at its current price of ~$28+ per share. Verizon yields 4.65% at its current price of $54+ per share. You get paid while you wait. But buying these shares in small increments is well advised.
Sleeper speculations: Overpriced (and soon to merge with Sprint) T-Mobile (TMUS) and small but occasionally lucrative Telephone and Data Systems (TDS) which actually includes a chunk of also publicly-traded US Cellular (USM).
Bottom line: These wireless, communications and entertainment conglomerates will do very well indeed in a huge nation like the USA where all adults are currently grounded, just like their irresponsible adolescent counterparts. What else is there to do than take advantage of the infrastructure and entertainment options these companies either facilitate or provide?
Unusual investment plague year ideas in the widely unloved oil patch
Over the last year or so, particularly lately, anyone considering investing in the oil patch should bear in mind the inscription above Dante’s Inferno: “Abandon all hope ye who enter here.” Given the oil-price destruction, driven first by over-enthusiastic shale oil E&P (Exploration and Production) companies and later by the Saudi-Russian oil spat. Whose target, BTW, is at least in part the US oil industry’s surprising resurrection.
The mega-huge oil companies like Exxon-Mobil (XOM) and Chevron (CVX) are available at rock-bottom prices today and continue to pay huge and apparently stable dividends. My favorite right now at least, is ConocoPhillips (COP). It pays less of a dividend, but appears more cost effective and capable of making at least flat earnings even at today’s absurdly low oil prices.
Let’s “refine” this idea
Better, I think, are two big refiners, namely Valero (VLO) and Phillips 66 (PSX). Both pay fat and likely stable dividends (9.56% and 7.27% respectively) and both are likely to ride out this storm, although share prices may drift lower in the near term.
The refiners ultimately make more money the lower crude prices go, particularly the more accessible (and cheaper) West Texas Intermediate (WTI) crude which tends to be priced $4-5 less than Brent Crude, the North Sea oil that serves as the world’s benchmark price.
The problem? We’re so awash in oil that the refiners are actually cutting back production because, well, what are they going to do with the continuing tsunamis of crude coming their way during the coronavirus shutdown. Which, not to forget, is keeping oil-consuming planes, trains and automobiles out of the air, off the rails and off the roads. Which means the refiners get to sell a hell of a lot less oil. So here, potential investors need to take little baby steps getting into issues like these.
An oil patch sleeper: One of our most unusual investing ideas
One oil patch sleeper is the oil tanker sector. These stocks can be immensely rewarding. But they’re also highly risky, given that in an eroding oil price environment, no one wants the oil they’d normally carry, so each company’s expensive tankers lose mass quantities of $$$ sitting in drydock without a longterm cargo contract.
But… wait for it… If everyone is producing so much oil today that we’re drowning in it, and if storage facilities are already overflowing, where do we put all this unprocessed excess crude? You guessed it: into those hordes of idle oil tankers. Which then get to charge oil companies for storage fees over x months and eventually get to charge them again for transporting that oil once it’s actually needed again. Win-win. For the tanker companies at least.
The problem remains, however, that tanker companies tend to have debt-ridden finances, making them a bit dangerous. But this odd phenomenon of where to put all the oil oversupply makes tanker companies at least temporarily an interesting speculation.
Of the current publicly traded tanker companies, Teekay Tankers (TNK) is probably the most stable in an unstable lot. But Dorian LPG Ltd. (LPG) is cheaper per share and most likely to get a speculative pop when things change later this year in the oil patch. But neither currently pays a dividend, and financial troubles always lurk in the background of these speculative companies.
More unusual investing ideas still to come
I’ll have more oddball investing ideas coming up. But keep in mind, they’re ideas, not recommendations. As I’m no longer a registered investment advisor, I don’t do that. I just tell you what I’m doing or considering doing. Travel at your own risk and do your own research, aka, due diligence. There’s no substitute for that.
For the record, I currently own a small amount of shares in T, VZ, COP, PSX, VLO and LPG. I may add to or sell these positions at any time and may acquire positions in other stocks mentioned here if the pickings look good. Then again, I may get killed in some of these stocks just the way I got killed over the last 4 weeks in some stocks I no longer own.
There are no guarantees when you have close encounters with Mr Market. Particularly during Investment Plague Year 2020. But given the current environment, there aren’t many ways these days to earn over 0.5% on your money without taking some risk.
– Headline image: Another plague in another era. People who died of bubonic plague in a mass grave from 1720 to 1721 in Martigues, France. Public domain image (US government, CDC employee photo), via Wikipedia entry on the bubonic plague.