Coronavirus Roundtable – The Stock Picker’s Market Vs. The Macro

The coronavirus outbreak and the effects of COVID-19 have gone deeper and wider than most people would have expected. That applies just as much to markets as anywhere. Whether it’s a tech sector that is supporting our new work from home or re-rating as expensive EV/Sales multiples make less sense; a healthcare industry under the spotlight to find a vaccine, a cure, or provide treatment to patients; or various parts of the financial sector that have shown acute strain as the economy goes into the freezer for a few weeks, and what increasingly looks like a few months or more of containment – there are no real safe havens or quiet zones.

We’re past the initial snapback and in that liminal state where the cross-currents of fiscal and monetary policy try to beat back against the damage of the shutdown, and investors decide where to stack their chips. The perennial question – is this now a stock-pickers’ market, or does macro triumph? And if there are stocks out there to be picked, what are they?

We convened a wide panel of Marketplace authors to hear their takes. Our panel features:

Our questions are in the header font, with authors’ responses following. Disclosures are available at the end of the article.

Is this a so-called stock-pickers’ market, or does macro matter more than anything else? Why?

Yuval Taylor, author of The Stock Evaluator: Every market is a stock-pickers’ market, but the degree of emotion-driven mispricing now is relatively high, as it always is during volatility surges. Macro may “matter” but it’s very difficult to trade; the differences between a good stock and a bad stock are easier to bank on than whether the market as a whole is going to go up or down.

Tom Lloyd, author of Daily Index Beaters: Of course, macro matters more than anything else. I am issuing stock picks for subscribers every day. Non-subscribers can follow the headlines of my articles for stock picks. However, they better be aware of my macro articles on the SPY published by SA as free articles. I am calling for a retest of the bottom of this bear market. When Index selling comes in, it takes the good stocks down with the bad. Our good stock -picks will be taken down with the market. The way around this is to pick the best stocks in the best sector. We just did that with Healthcare stocks. This way, index buying in the XLV actually helps your stock-pick and buffers the macro fall in the market. I expect XLV will continue to do better than the market. I expect the market to put a “W” bottom in place which is a double bottom. The XLV so far is showing the bullish and somewhat rarer “V” bottom.

Grant Gigliotti, author of Good Stocks@Bargain Prices: It’s a combination of picking stocks that have good company fundamentals and considering the situation of the general market. If you only focus on the macro, you could buy a low-quality company with poor fundamentals that you will later regret buying. On the flip side, if you only focus on the company fundamentals and individual stock’s valuation, then you could still overpay for a stock, since macro issues could cause most stocks or certain industries to decline. So in summary, consider both micro and macro.

Kevin George, author of Global Markets Playbook: Macro matters first. Look at oil. Financial screening and Q1 earnings can lag. We also have to worry about damage to the consumer and small businesses.

Ranjit Thomas, CFA, author of Stock Scanner: The macro matters more because for many companies, it is hard to gauge what their earnings will be. It depends heavily on how much longer the economy will be shut down.

Bram de Haas, author of Special Situation Report: It is a market where hard work can pay off. For a while it seemed that it didn’t matter what you picked as long as you picked U.S. mega caps. That’s still true but it is also about to change.

The Value Pendulum, author of Asia Value & Moat Stocks: It is important to be “macro-aware” and not “macro-focused.” For example, you want to assess a company’s foreign currency and commodity risk exposure, but you should not try to predict the movements of specific currencies and commodities. Peter Lynch once said that “If you spend more than 13 minutes analyzing economic and market forecasts, you have wasted 10 minutes.”

Value Digger, author of Value Investor’s Stock Club: It’s a mix.

Quad 7 Capital, author of BAD BEAT Investing: Over at BAD BEAT Investing, we have communicated to members that this is a quintessential stock-picker’s market and would argue that it works for both the long and the short side of the equation. Being selective in recommending how macro trends impact businesses over the next 6-12 months is how we were able to make money during all of this crisis, while long-only has been decimated. Our team puts many hours into researching names and unlike the past 5 years where nearly every long call made money, we are now separating the winners and the losers.

Safety in Value, author of Microcap Review: Whether it’s a stock-picker’s market or a macro market depends largely on your time horizon. In the very short term, I would expect most stocks in the market to trade based on macro news. However, in the long run, the cream will very much rise to the top. The stock-picker advantage in the current market is that good news on a single stock level is often not getting priced in. So firms with stock-specific good news are trading in tandem with the market, making significant bargains available on down days.

David Trainer, author of Value Investing 2.0: The macro environment gets the headlines because the current crisis impacts firms across the entire market. However, what really matters now is diligence on fundamentals. Investors that take the time to analyze fundamentals, particularly cash flows, can find companies that can not only survive the current crisis but thrive during the recovery. These companies, many of which are trading at historical discounts, present great buying opportunities.

One macro issue that investors may be missing is the disruption in financial data collection from offshore operations in places like India. S&P, Refintiv and other legacy data providers rely on these offshore ops to get millions of investors the data they use in their models and research.

Markets could see even more volatility as these data providers cannot get their collection ops back up and running amid the COVID lockdowns. Even the biggest outsourcing firms in the world, i.e Tata Consultancy Services (OTCPK:TTNQY), HQ’d India, can’t get more than 40% of their employees to work from home.

How do you model out earnings for the companies you’re looking to invest in given how many unknowns go into that, or how else are you valuing them?

Yuval Taylor: For valuation, I’m looking primarily at analyst estimates and TTM figures for earnings, free cash flow, gross profit, and sales, which is what I always do. The farther out you look, the more uncertainty there is. I’m looking for mispricing based on current financials, not financials a year from now, which makes sense since I usually only hold stocks for about two or three months. But more importantly, I’m looking at quality metrics, sometimes TTM and sometimes three-year or five-year averages, which in many cases aren’t going to change that much. I place about three times as much emphasis on quality/growth/stability measures as I do on value ones.

Tom Lloyd: Our Stocks-In-Demand, SID, computer system calculates the fundamental buy signal and total Implied Return including the dividend. Unfortunately, this is a lagging indicator. We spruce it up by looking at the latest changes in analyst targets. Also we know the market is smarter than the latest changes in targets, because the market knows those targets long before they are published, so we use technical buy signals as a leading indicator to the fundamentals. I spent my whole Wall St. career showing professional (fundamental) portfolio managers how to use technicals as a leading indicator. It helped to get them out of Enron long before it became worthless. Yes, the fundamentals were fraudulent and nobody held portfolio managers responsible, but the losses were avoided by those using technicals as well as fundamentals. We model both fundamentals and technicals to come up with Buy and Sell Signals for every stock in the Index. They tell us where the Index is going.

Grant Gigliotti: Since the current pandemic situation is causing too many unknowns to forecast future earnings, it’s a good idea to only buy stocks which have a proven history of 5 to 10 years of consistent and improving earnings. Use a conservative average earnings growth rate to help forecast future growth rates once the economy returns to previous “norms.” Also it’s important not to rely too heavily on any specific metric for valuation. It’s better to consider various valuation methods to get a ballpark valuation range. You might consider Price-Earnings, DCF, Residual Income valuation, and compare expected annual compounding rate of return.

Kevin George: I’m invested in companies that are not supply chain, or consumer-dependent.

Ranjit Thomas, CFA: Generously hair-cutting revenue and adding costs!

Bram de Haas: Over time I’ve become less enamored with precise valuations. I started to become more serious about investing after the GFR was in motion. Buying seriously when the “blood was in the streets.” Turned out there was a lot more blood to be spilt. I lost most of my income while my portfolio continued tanking in an environment that turned bleaker by the day. Balance sheet investing became all the rage afterwards. To the day I think about the downside first and as long as I can clearly make a lot of money as time passes, I’m not too concerned where the valuation should be. In other words, it is more important to me that the valuation should clearly not be what I can buy it for.

The Value Pendulum: Predicting earnings is a fool’s errand, and this is especially true in the current environment. Most earnings forecasts for 2020 are dependent on how long it takes to contain the virus, or at least how long the lock-downs will remain in place. Instead, one should take a long-term view, and value stocks based on their normalized earnings, dividends or cash flow sometime in the future. Of course, this is only applicable to companies with the balance sheet to survive with zero revenue for at least a year.

Value Digger: Currently, there are many unknowns in some sectors, so earnings forecasts are inaccurate. Therefore, I avoid or short specific stocks from these sectors. And I advise the subscribers to my research to short them too.

QUAD 7 Capital: This is very sector-dependent, and requires much more than this forum to adequately address for how we make recommendations at BAD BEAT Investing. We factor in very different metrics for tech, versus say energy, versus, say the financials. The macroeconomic climate has impacted the beta coefficient very differently in some of the statistical models that we employ. We think the best value is found in names that may have been undervalued before the crisis, which are likely to see only some reduction in volumes. Other factors are at play as well that you model in, which include momentum, insider action, product releases. The question is too general to hone in on one key factor. The bottom line is that you have to ask yourself whether the company in question, if their stock, whatever it is priced it, is attractive relative to possible impacts to COVID-19. This is how we were able to scoop up names in mid-march at great values, while selling off massive positions in February to raise cash. The writing was on the wall.

Safety in Value: The biggest factor the coronavirus pandemic has added to security selection is a consideration of how long a firm can last at its current revenue run rate. For some firms (e.g. utilities), this revenue run rate hasn’t changed dramatically. For others (travel names), the current run rate may be ~0 revenue. Naturally, the names with the biggest draw-downs are in industries where revenue is down dramatically. Determining how long a specific company can last (and then how likely it is their revenue will be recovered by then) has become a key factor in stock selection. I think buying quality businesses that deserve to exist is another way to reduce risk here.

David Trainer: First, we look long-term – trying to model the exact duration and depth of the dip is too hard. Investors need to look longer term – as the stock market does, and, the best way to understand what the market expects is to quantify the expectations baked into current stock prices. We use our reverse DCF model to do just that. By quantifying expectations, investors can analyze the future growth in cash flows required to justify a stock price. In instances where these expectations are too pessimistic, either based on macro-trends or company fundamentals, investors can find value.

Do you feel hedging is necessary at this stage, and if so, how do you put that balance in your portfolio?

Yuval Taylor: I’ve never hedged. Instead, I manage my portfolio to minimize volatility. That’s mostly done by picking stocks with low share turnover and stable financials. My portfolio has experienced far less volatility during this period than any of the benchmarks I’ve checked. As a result, I have a lower draw-down than almost any of them.

Tom Lloyd: We have the ability to hedge because for every list of longs we also supply the shorts. There isn’t much demand on SA for this approach. As a result our only hedge in the long portfolio is to go to cash at the beginning of a bear market. This is exactly what we did in our 10-stock, $100,000 model portfolio. We only left one stock, Regeneron (REGN) in the Model Portfolio. As a result we are doing much better than the Index. We have since added two more, Amazon (AMZN) and Electronic Arts (EA). As soon as the XLV pulls back we will add some Healthcare stocks. We also have the ability to do stock pairs hedging and have plenty of shorts we could pair with AMZN for instance. We could also come up with a 10-stock, $100,000 short portfolio to match our long portfolio until this bear market is over.

Grant Gigliotti: I try to hedge or protect myself by always keeping a portion of my funds as cash. I also split my money between different stocks. When possible, I try to not buy all stocks in the same industry. It can be good to diversify, but diversification is only wise when diversifying among good companies bought at bargain prices. If diversifying among so-so companies, which were bought at expensive prices, then you are actually increasing your risk.

Kevin George: I’m not hedging.

Ranjit Thomas, CFA: Yes, I believe hedging is useful. It could be as simple as selling covered calls.

Bram de Haas: Not necessary but I think it is a great idea to have positions that do well, or at least survive, going through an extremely hostile economic environment. Most of my long positions can ignore, survive or even thrive in an environment like that. The exceptions will do really bad but should do really well if we’re going into a miraculous recovery. Things are moving so fast that on the short side I’m taking a shotgun approach. I need a slower market to improve on my positioning there.

Value Digger: Being long-only or being long-only dividend stocks is a recipe for disaster in this market because the market is going to be very volatile in 2020-2021. Therefore, hedging is a “must” and investors must have a diversified portfolio with long and short ideas to beat the market in 2020-2021. On that front, I advise the subscribers to my research to short overvalued or overhyped or highly leveraged companies from specific sectors.

QUAD 7 Capital: Wish this forum was in early March or late February. At BAD BEAT we made a bold call to go to at least 30 but better 50% cash in late Feb, while calling for very specific shorts in Airlines, Hotels, Restaurants and Casinos. We taught members about inverse funds, and the difference between true shorts, and shorting via puts. Fast forward to today. We closed all of our hedges two weeks ago, unless you consider gold and silver a hedge, which we started buying up massively in March and continue to own. We definitely think you need gold here. In terms of more broader hedges, we have been teaching members how to intraday play hedges, as well as taking on small hedges on their own positions through buy-write approaches, pair trades, etc. From Feb 24th-March 30th, our short position peaked at 18% of our trading portfolio, while we sat in about 50% cash, while playing long consumer staples, Clorox (NYSE:CLX), Walmart (NYSE:WMT), and stay at home stocks, like AMZN, Teladoc (NYSE:TDOC), Netflix (NASDAQ:NFLX), Zoom Video (NASDAQ:ZM). All documented. Now we believe that shorts are part of a stock-picking strategy, and hedging should be short term, and against some of your own positions. What is more important is having a clear entry and exit plan.

Safety in Value: I don’t believe hedging is specifically necessary, as I think quality businesses bought at low prices will work out very well over the long term. I do have a small basket of puts that I bought on the recent recovery, and I had a similar small basket prior to the coronavirus pandemic. It isn’t a core part of my investment thesis. The reason I do it is that puts tend to produce large gains that can be reinvested into bargains when the market is down. On average I expect to lose money in the puts.

It’s still early days in 2020, but any lessons you’ve taken away from this period, or that you’re applying from past market sell-off-rebound cycles?

Yuval Taylor: Any lessons that one might apply from past market sell-off-rebound cycles may very well not apply to this one. In particular, there’s the small-cap rebound that has characterized so many other sell-off-rebound cycles. I don’t know if it’ll happen this time. For the last ten years, the forward earnings yield on small caps has been significantly lower than that on large caps. That hasn’t changed at all, and I don’t think it’s likely to change in the near future.

Tom Lloyd: We want to be all in at the bottom of this bear market, because it is so obvious that prices will return after the epidemic. Timing is the great unknown. You can be sure that Warren Buffett and all the bargain hunters see this bottom as a great opportunity to bottom-fish. Usually, the pros have to buy early because they are buying in size. However, SA subscribers can wait for the move to begin off the bottom. They can wait to make sure they are not suckered by a dead cat bounce or talk of a “V” bottom. I think the bottom of this bear market will be retested. If there is a second wave to this COVID-19, we may even go lower than the existing bottom. I won’t buy all in until we have the all-clear signal. I will post that on SA.

Grant Gigliotti: It’s good to stay humble and to remember that nobody is able to accurately predict what will happen with the stock market or when to perfectly time it. Common sense goes a long way in understanding when the market is overpriced and when you should be waiting patiently for the market to fall. Unfortunately, many people get impatient or let emotions or greed control their investing actions.

Kevin George: I saw complacency building on the way up and, even on the rebound, investors can be slow to move away from the last cycle’s winners.

Ranjit Thomas, CFA: The Fed’s liquidity injections can be quite powerful. Retail investors will chase the same familiar names they like to dabble in.

Bram de Haas: Because 08’/09′ was a foundational period for my investing there haven’t been many new lessons. One thing did surprise me though; I’ve been writing about COVID since January 22, 2020. Initially, not too worried. But I kept writing about it nearly every day with increasing frustration the market ignored it and powered upwards. The onset and impact of the GFR was a surprise to me. But now I’m starting to think that the signs were there to read all along as they are today.

The Value Pendulum: Counter-intuitively, the best-performing stocks in past bear markets have always been beaten-down companies in the most hated industries, with a high degree of financial and operating leverage. Among these companies, the survivors had the highest returns. It is fine to allocate a certain percentage of the portfolio to some highly-geared stocks which have a good chance of survival, and benefit from non-recourse leverage.

Value Digger: I have 30 years of investing experience, so I have seen the Coronavirus movie many times before. In these 30 years, I have experienced many corrections, recessions and crashes, so history has taught me a lot. For instance, complacency is a killer. Irrational exuberance is a killer. Also, market declines are inevitable and the “Buy The Dip” investors learn the hard way. Additionally, the stocks have risk and their risk largely depends on the company’s leverage although many investors still ignore or downplay it. I have used this decades-long experience in today’s market, so me and the subscribers to my research have made multiple triple-digit returns by shorting specific stocks from specific sectors.

QUAD 7 Capital: This action is unprecedented, both in the viciousness of the swing lower, as well as the action taken by the Fed and the government to prop up the economy and the consumer. Political belief aside, all of this backstopped the market. The question becomes, will this be the new norm when bear markets pop up? Remains to be seen. The biggest thing that we believe you need to be aware of is that profit-taking is critical. So many have held through this saying “it will come back.” That is true, but you cost yourself massively. Shifting your portfolio, especially your trading one, is key. Even our long term, we shaved a lot, so that we could redeploy. Bottom line here, never be 100% invested.

Ignore the noise and focus on fundamentals. Be greedy when others are fearful. If you stay focused on deep understanding of fundamentals, you can steer through the noise more easily. Despite the record volatility and intra-day swings, the market (S&P 500) currently trades around the same level it did in early March. Analyze fundamentals by reading the footnotes and MD&A of financial filings to calculate the true profitability of a firm. We leverage our technology to perform this diligence across nearly 3000 stocks in the market. Such diligence is the only way to ensure the companies you’re holding, or looking to buy on the cheap, have the cash flows to survive the current downturn and continue creating shareholder value in the subsequent recovery.

What is the most important thing you need to see in a portfolio holding or a potential buy?

Yuval Taylor: It’s not just one thing. I use a multi-factor ranking system, and stocks have to do well on a variety of metrics. A potential buy for me should have most of these things: high growth in operating income, low share turnover, high forward earnings yield, low short interest, a recent positive earnings surprise, accelerating sales, low accruals, low market cap, and low daily dollar volume.

Tom Lloyd: We want stocks and sector ETFs that are outperforming the Index. These are the ones that will hold up better than the market. They are the ones that will lead us out of the bear market. The young investor is looking out 20 or 30 years and this is just a blip in the long-term return of the stock market. In a couple of years, you will look back and not believe how cheap stocks were in 2020. At the bottom of this bear market, I will be buying stocks that I know will be stronger and better two years from now because their fundamental story is great and this earnings drop is only a temporary drop in earnings that their balance sheet can easily absorb and survive for the long term.

Grant Gigliotti: As recommended by Warren Buffett, before I buy a company, I need to ask myself if I would be confident with holding this company for 10 years in a worse-case scenario. This doesn’t mean that I will actually hold the stock for that long, but I should at least buy with that mindset to ensure that I’m making a worthwhile investment.

Kevin George: The stock has to be able to weather the economic downturn. I feel the lockdowns will ease but the global effects will be worse than expected initially.

Ranjit Thomas, CFA: Reasonable valuation based on GAAP earnings, growth and free cash flow.

Bram de Haas: The most important thing is that I’m seeing something in the asset that others may not.

The Value Pendulum: It is all about leverage, both operating and financial leverage. Companies with low degree of financial and operating leverage have the highest probability of weathering the current storm. The majority of stocks that one holds in his or her portfolio should be these “safe” stocks.

Value Digger: A portfolio must be well-diversified. A potential buy must have a strong balance sheet. I do not buy hype. I do not buy fads. I do not buy highly-leveraged companies. I do not buy grossly overvalued companies. Actually, I short all of them. And the results to-date speak volumes.

QUAD 7 Capital: At this point it comes down to three things. 1) a quality balance sheet. 2) Is it a product or service or commodity that everyone continues to use, and does it have a moat? 3) Sector.

Safety in Value: The most important thing in any portfolio holding is always a strong expectation for risk-adjusted return. For arbitrage positions, this means a good spread along with a high likelihood of the deal closing. For more standard long positions, this means a quality business trading at an attractive price.

David Trainer: In the current market, the most important thing is strong cash flows and the necessary liquidity to survive the economic impacts of COVID-19. Next, we always look for companies with growing core earnings and high return on invested capital. Investors in the current market need to think long term and see through the (inevitable and steep) dip in economic activity and be careful not to throw the baby out with the bath water. Numerous industry leaders are getting punished as if they’re laggards and might not survive the crisis. These disconnects create opportunity.

If you’re a long-term-oriented investor, how do you keep up with fast moves like the sell-off and snap-back of the past few weeks?

Tom Lloyd: I am a senior so I don’t have a 30-year time frame. That is why our model portfolio went to cash as the market turned bearish. I want to be in cash to buy the bottom of this bear. Also I want the ability to be out of high beta stocks in the portfolio so that I can rotate into stocks that will do better than the market during this bear market. I want to be in stocks that will benefit from the pandemic like Healthcare stocks. REGN was already working on the coronavirus when COVID-19 appeared. They were already working with the CDC. Gilead (GILD) also has remdesivir, an antiviral, which has shown promising results in a Chicago study. Obviously, with the malls closed, AMZN is the alternative with home delivery. I did not participate in the dead-cat bounce because I expect a retest of the bottom. However, I was willing to test the waters with AMZN and EA.

Grant Gigliotti: I only buy if I’m confident that I’m buying at a discount when comparing the value vs. the share price. After buying a stock that I intend to hold long term, I immediately set a limit order to sell around my estimated value of the stock. When the stock crosses over my estimated value of the stock, then it will automatically sell. I remove myself emotionally from investing as much as possible so I don’t need to worry about keeping up with fast moves based on emotions.

Kevin George: Investors should always be wary of historically high valuations across the market. The sharp move lower is a buyer’s market in the right stocks.

Ranjit Thomas, CFA: It is difficult and you are bound to make some mistakes in the fog of war. Best to stay calm and not over-react.

Bram de Haas: I’ve been thinking a lot from a strategic top-down view because the conditions of the environment are changing. A lot of my buying/selling in a tactical sense is based on research/knowledge that accumulated over the prior years. In such a fast-moving market, you can’t do the research fast enough from scratch.

The Value Pendulum: One should try to be more diversified, because stocks in general are cheap and you don’t want to be overly-exposed to stock-specific risks and miss on the broad market recovery. Being more diversified also allows an investor to benefit from active rotation, switching from under-valued stocks to even more under-valued ones to maximize overall investment return.

Value Digger: I average down by following specific strict rules. Self-discipline and cold blood are required in this case. Emotional investing is a big mistake.

QUAD 7 Capital: We separate out our long-term plays and short-term plays. In the long term, the recipe is simple. Sell some of your positions when there are massive gains, buy it back on a dip. Always leave yourself cash.

Safety in Value: The easiest way to keep up with short-term moves as a long-term investor is to keep track of companies with quality businesses and watch their price movement. While I mostly invest in microcap securities, I’ll give a big cap example here. I sold my Costco (COST) position in late March, and redeployed the significant gains to other beaten down firms, notably Disney (DIS). While Disney is certainly more exposed to the coronavirus than Costco, in the long term I don’t think their excellent business will be impaired. Costco is an excellent business as well, but the relative value difference became significant.

David Trainer: Ignore that noise as best you can. If you’re truly in for the long term, the one-month moves shouldn’t impact your holdings – provided you invested in quality companies to begin with. Instead of worrying about the volatility day-to-day, look past the crisis to identify companies best positioned to thrive in the recovery. Plus, it is impossible to time the market.

If you’re a short-term oriented trader, how do you avoid getting stuck in one view or the other given we’ve had renewed volatility?

Yuval Taylor: I rely on automated systems to decide what to buy, how much, and when to sell. That way I’m not second-guessing the market.

Tom Lloyd: Our computer system has both short term and long-term Buy, Hold and Sell Signals. These signals remove all emotion from our decision-making. For short-term swing trades, we use our Demand/Supply signal that drives price short term. We also have a short term, technical sell signal. We also use the “stop and reverse” SAR signal. These are updated every day and sent out before the market opens each day. We don’t get stuck because we just follow our signals. You must have an automatic sell signal like this or you do get stuck. Our long-term signal is our overall fundamental/technical grade for each stock scored from 0 to 100. REGN has our 100 score. EA is at 86 and AMZN is at 85. The Buy signal range is 80 to 100.

Grant Gigliotti: I try to do my homework upfront to be confident that I’m buying a stock at a discount price when comparing its value to its share price. I also realize that I can’t time or predict what will happen tomorrow, so I simply try to buy at a bargain price. Then once I buy a stock that I’m confident about at a bargain price, I immediately set a limit order to sell at a realistic % return that I would be content with. If the stock hits that sell price, I might set a limit order to buy again at my original buy price. If the stock is volatile, bouncing up and down, I could and have bought and sold the same stock multiple times for quick gains of 5% to 15% within a period of 1 to 2 months.

Kevin George: My approach for the short term relies a lot on technicals. This helps me adopt good risk management in volatile periods. I’m always looking at long and short opportunities so it helps not to have a long-only bias.

Bram de Haas: I don’t employ a strategy where I need to predict the direction of the market. I try to buy things that do well in a range of circumstances or based on a company or industry-specific event. For example, I don’t think we’ll see high CPI inflation short term. I still buy a lot of companies that should do really well in an inflationary environment because some of these are very cheap.

Value Digger: First, I avoid day trading. Second, my shortest investment horizon is 3 months and when I do it, I check many parameters. A pick must tick all the boxes, fundamentally and technically speaking.

QUAD 7 Capital: This is how we have crushed the market over the last few years. We believe your short-term trades should supplant your long-term holdings. The answer here is simple. Have a game plan. All of our short-term ideas come with a plan, targeted entries, exits, and stop losses. Let us be clear. When trading, you WILL have to take losses. We liken it to a game of poker. You will have to fold hands, even good ones, that turn into losers. The key is to play it right, and win massive pots. Translating to trading, it is perfectly okay to take a few small losses to set up for the bigger winners. Never be married to an idea.

Any specific stocks you like in this climate, and what’s the story?

Tom Lloyd: We just published to our subscribers that we like the ETF for Healthcare (XLV). The stocks with Buy signals are Regeneron at 100, Centene (CNC) at 88, Incyte (INCY) at 88, Eli Lilly (LLY) at 88, and Vertex (VRTX) at 81. They are all outperforming the Index and reaching for their old highs.

Grant Gigliotti: Cintas (CTAS) has long-term consistent and improving fundamentals. I feel that the company will continue to be around for the next 10 years providing the same service (uniform sales and cleaning services). If the stock price falls low enough below my estimated value for the stock then I will purchase and hold until the economy picks back up. When the pandemic is more under control and more people return to work, the uniform servicing will be back in demand and the company share price should climb again.

Kevin George: I’ve become more defensive. I look for income stocks that have some growth potential in sectors, or with price models, that can avoid a consumer/GDP downturn. Pharma/Biotech is an example.

Ranjit Thomas, CFA: I think AutoZone (AZO) should do well as people drive more with cheap gas once the lockdowns end and keep their cars longer due to the recession.

Bram de Haas: I really like Scully Royalty (SRL) which is a holding company with a royalty in a Canadian iron ore mine. It exemplifies what like to invest in: $90 million market cap/$45 million in cash/no debt/forward EBITDA of $30 million invisible in the data for now.

Value Digger: When it comes to our long ideas, we like shining our flashlight in the dark corners of the market and we like digging up overlooked stocks with no analyst coverage. These smaller companies tend to be uninvestable for institutions, and thus can provide unbelievable returns for those willing to do a deep dive into the fundamentals of these businesses. American Shared Hospital Services (AMS) is one of them. First, AMS is immune to the coronavirus. Also, AMS is consistently profitable with positive operating cash flow, free cash flow, low leverage, growth prospects, very good management and high insider ownership. On top of this, the CEO and biggest shareholder is old, so AMS could become a takeover target in the next couple of years.

QUAD 7 Capital: That would not be fair to our members at BAD BEAT, but two easy ones are Philip Morris (NYSE:PM), safe dividend yield, and when things open up, volumes will normalize. Another one is GDX, a basket of gold miners, which granted has moved since we recommended it, but we see massive upside in gold as a response to the unprecedented government action and continued uncertainty over COVID-19.

Safety in Value: One stock I quite like in this climate is Travelzoo (TZOO). They’ve shut down their money-losing Asia-Pacific business during the crisis. The losses from that segment have obscured the value of their very profitable North American and European businesses for years. That, combined with an excellent acquisition, makes the business very cheap on normalized earnings. Their excellent balance sheet (significant cash, zero debt) gives them significant runway. I’m planning to publish a full write-up in the next few days, so follow my profile if you’re interested.

David Trainer: Two names in particular are Simon Property Group (SPG) and SYSCO Corporation (SYY). Each business has consistently grown core earnings in the past and has the necessary liquidity to survive an extended economic shut-down. Their profitability ranks highest amongst their respective peers and each operate in an industry we expect to bounce back post-COVID-19. We’re not alone either. The International Monetary Fund and nearly every economist in the world believe that U.S. GDP growth will be higher in 2021 than expected before the pandemic. Best of all, each stock is trading at historically cheap levels. For SYY, its current price implies that over a decade after the COVID-19 pandemic, its profits will have only recovered to the same level achieved in 2017. If we assume even a modest economic recovery, the stock is worth $95/share today. The expectations baked into SPG tell a similar story. Its current stock price implies that 15 years after the pandemic, its profits will have only recovered to the same level achieved in 2014. Meanwhile, using our reverse DCF model and assuming a modest economic recovery, the stock is worth $106/share today.


Thanks to our panel for their input. We hope it gave you some ideas of how/where to look in the current market. Check out their work at the links above.

This concludes an initial cycle of coronavirus-oriented Marketplace roundtables that we began in mid-March. We’re going to start a new cycle and return to some of the topics we’ve already covered. You can see them all here, and if there is a specific topic you’d like to see us cover or re-cover, please let us know.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Grant Gigliotti may open a position in CTAS.
Kevin George is long GILD and ABBV.
Ranjit Thomas is long AZO.
Bram de Haas is long SRL.
Value Digger is long AMS.
Quad 7 Capital is long PM, T, AMZN, WMT, GLD, and NFLX.
Safety in Value is long DIS and TZOO.

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