The market is in turmoil, and it seems like everyone I talk to wants my take on what’s happening this week. So here’s my take:
- I really don’t know if the various bailouts and decisions not to bail out made by Paulson et al will turn out to be good decisions or not. I do know that the mess we’re in is due to hard decisions which have been put off for years at the highest levels, and I do know that the American taxpayer is going to be feeling the pain for a generation, if not generations.
- Although I predicted that the credit crunch would lead to a bear market, (and was bearish long before that) the intensity of this last week still caught me by surprise. I had expected big problems to emerge sooner, and when they did not, I began to expect that the fall would be gradual, rather than quick.
- I do not believe we are at the bottom, so I’m taking the current recovery as an opportunity to unload some of the stocks I expect to be hurt the worst.
- Long-term, the extra US-denominated debt will have to be either repaid, or inflated away. Inflation seems most likely, which may be good news for technologies like wind and solar which produce energy at a fixed cost, and probably better for efficiency technologies which do more with less.
Stocks to Sell
What companies are likely to be worst hurt? Any company which needs to raise new money in the next couple years. Although I tend to favor established, profitable companies, I have recommended (and own) a smattering of startups with compelling technology, and I’m currently selling many of these.
Many of these companies are thinly traded, and I am still in the process of selling these positions (mostly at substantial losses). Not wanting to depress their prices, I will not disclose the specific companies at this point. I also am holding on to some which have fallen so far that the proceeds of the sale are insignificant, especially if they are in accounts such as IRAs where the tax loss would not be useful.
Ten Stocks to Buy
Last February, when it was still fairly early on in this bear market, I brought you a series on stocks to buy when you think we’ve hit bottom. Although I do not yet think we’ve hit bottom, I know that timing the market is very tricky. I also know we’re considerably closer to bottom than we were in February. Given these uncertainties, I take the approach of selling cash-covered puts on stocks I’m interested in at prices below where I expect them to fall. This means that I collect the premium if the stock does not fall that far, or I buy the stock at what I considered a very good price if it does.
I currently like companies involved in energy efficiency, wind, transmission, and government contractors involved in alternative energy, because I expect all of these to be more resilient during what I expect to be years of hard economic times. Here are my current top ten, with links to the articles where I wrote about them. Since most of these companies are both large and extremely liquid, I don’t expect that listing them here will affect the stock prices materially. The ranking is based on a combination of how much I like the company itself, and the current valuation, starting with my current top pick.
- New Flyer Industries (NFYIF), $11.00
- Johnson Controls (NYSE:JCI), $33.65
- First Trust Global Wind Energy ETF (NYSE:FAN), $22.55
- Veolia (NYSE:VE), $45.15
- Philips (NYSE:PHG), $30.83
- Honeywell (NYSE:HON), $45.32
- General Cable (NYSE: BGC), $38.99
- Siemens (NYSE:SI), $102.42
- General Electric (NYSE:GE), $26.62
- AECOM Technology (NYSE:ACM), $27.28
DISCLOSURE: Tom Konrad owns or has written puts on NFYIF, JCI, FAN, VE, PHG, HON, BGC, SI, GE, and ACM.
DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.