Two Dozen More Stocks

I remain optimistic over the next 3-6 months.  Let’s face it, the naysayers have been consistently wrong about Market direction.  Protestors stormed the Capitol, US COVID death toll has exceeded 400k, tomorrow Biden will become the 46th President…and Markets are at or near record highs.  The COVID90 portfolio has done extraordinary.

Since I’m in a great mood, I wanted to honor our new leader with a portfolio of 46 stocks to celebrate his inauguration.  But alas, even with my high level of enthusiasm, I only felt comfortable with 24 stocks that I thought still had some COVID rotation inertia. 

Putting aside irrational exuberance, the EASY MONEY HAS ALREADY BEEN MADE.  But that doesn’t mean there’s an impending correction.  Especially since SOOOOO many investors are still sitting on the sidelines.  I’m constantly hearing that “the market is too high”, from the same crowd that 6 months ago said, “the market is too low, and going lower”.

So scraping the bottom of the COVID recovery barrel, I bought the following:

AKAM Akamai
DNB Dun & Bradstreet
DXCM DexCom
HTLD Heartland Express
LLNW Limelight Networks
LMNX Luminex
LMT Lockheed Martin
MHH Mastech Digital
MMM 3M
MRCY Mercury Systems
NEPH Nephros
VZ Verizon

And as a hedge, to round out my otherwise fairly aggressive portfolios, the following Utility stocks were also added:

BKH Black Hills
HE Hawaiian Electric
NI NiSource
NJR New Jersey Res
NWE NorthWestern
OGE OGE Energy
OGS ONE Gas
PNW Pinnacle West
POR Portland Gen Electric
SJI South Jersey Ind
SWX Southwest Gas
UGI UGI

As always, invest with caution and a healthy dose of sarcasm.

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Biden is GOOD for Oil

In a previous post I discussed how Copper was foreshadowing an improving economy and likely a continuation of the stock market rally.  The same can be said of serval key economic indicators:

  • Housing recovered in June
  • Copper recovered in July
  • 10 Year Treasury Yield bottomed in August
  • Oil broke out in October

Speaking of Oil, it should do well under Mr. Biden, especially if he restricts production by banning Fracking on federal lands.

Oil is already up by more than 20% since the election and I believe it’s headed to at least $53 in the not too distant future.

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Copper price foretells the post-election Stock Market Rally

Many people were pessimistic heading into the 2020 presidential election.  But the price of Copper was foretelling a stock market rally.

Prior to Trump’s surprise win in 2016, the price of Copper was stagnant. (see chart)  Once he won, both Copper and the stock market rallied for the next 12 months.

Prior to this year’s election, Copper was already moving up…foreshadowing a strengthening economy, in spite of the negativity holding back the stock market.  As usual, Copper was correct and the pessimists were wrong.

In November, the small cap Russell2000 index had its best monthly performance EVER.  Today it again set a record high.  The rotation is into Value stocks, which are outperforming the NASDAQ and general market.  I expect this performance to continue into the first quarter of 2021.

For those of you that bought into the COVID90 portfolio…you’re welcome.

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Value Funds comparable to COVID90 portfolio

I’ve received questions from readers that either can’t or don’t want to purchase individual stocks, but would like to mimic the COVID90 portfolio with an ETF/Mutual fund.

If you have access to a wide array of funds, then you could cobble together a half dozen sector specific indexes that target the industries that haven’t yet fully recovered from COVID.  To name a few:

  • Energy (XLE)
  • Finance (KBE)
  • Leisure & Entertainment (PEJ)
  • Airlines (JETS) or Aerospace (ITA)

The simplest route would be to purchase a couple broad based Value funds like Vanguard’s Value Index (VTV) or their Small Cap Value Index (VBR).  The potential gains won’t be as extreme with the broader based indexes, but that’s because they’re less volatile.  The below chart indicates that the Small Cap Value upside for a return to pre-COVID normality is about 13%.   

Bottom line is that Value (in any sector) has underperformed the general Market and is forming a multi-year “hook & barb” chart pattern…which presents the setup for a potential bullish breakout.

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COVID90: final purchases

Today I purchased the remaining 19 stocks to round out the COVID90 portfolio.

I’ve received questions as to the timing of my decision to jump back into the market.  As previously stated, I’ve been waiting for a COVID 2nd Wave panic to present a buying opportunity.  While that still may occur, at this point, I think the election timetable will have more of an impact on the market than a resurgence of COVID.  Not that it necessarily matters whether it’s Tweetle Dumb or Tweetle Dee, but just the CERTAINTY of knowing which Pinocchio will be occupying the Oval Office.  As such, with the election just around the corner, time is running out.

BUT…the COVID90 portfolio is based on much more than just timing the election.  Please note the below chart, which represents the average price action of the cumulative COVID90 stocks year-to-date.  The portfolio generally mimicked the market during the COVID collapse in March and then recovering through the early June peak. 

But that’s where the correlation ends.  The market recovered in August and went on to set a new record high in early September.  COVID90 has been staggering since the failed breakout in June.  Perhaps because of a resurgence in COVID infections as the economy began to re-open.  This is a primary reason that I’ve been anticipating a COVID 2nd Wave downturn. 

HOWEVER, note that the September 24th trough never dropped as low as the May 13th bottom.  Also, the yield on the 10 Year Treasury generally followed this trajectory, putting in an absolute COVID panic bottom on August 3rd.  Since that bottom, the yield has risen nearly 42% and is above both its 50 & 100 day moving average.

The price action of the COVID90 stocks is the primary factor that has influence my decision to buy in at this time. 

Today’s purchases included:

BAX        Baxter

CSCO     Cisco

EIX          Edison

ETR         Entergy

FEYE       FireEye

INTC      Intel

ITRI        Itron

LDOS     Leidos

LHX        L3Harris Tech

LYFT       Lyft, Inc.

MEI        Methode Electronics

NGVT    Ingevity

NTAP     NetApp

SAFM    Sanderson Farms

SLQT      SelectQuote

TAP        Molson Coors

UA          Under Armour

WAB      Wabtec

XOM      Exxon

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