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In the last two weeks, at least 19 states have seen new coronavirus cases go up. And on Tuesday, six states reported record increases. Below, Neil George, editor of Profitable Investing, explains that this surge is partially due to an increasing number of folks heading out without masks, which means one thing: “We are far and away from a virus-fixed economy and markets.” Given this unfortunate reality, in this Sunday Digest, let’s look at three companies Neil likes, even as the coronavirus spreads. But there’s plenty more … Neil also discusses the blowout retail report numbers from earlier in the week, as well as a Supreme Court decision that’s big news for two energy companies. As always, Neil is incredibly generous, giving away the names of specific stocks he likes. I’ll let him take it from here. Have a good weekend, Jeff Remsburg |
Neil’s Journal: News Cycle Isn’t Always Reality
By Neil George
The U.S. stock market is trading on a very forward-looking expectation that the U.S. economy will return to some form of normalcy after the lockdowns.
Unlocking is already rampant. And to make things worse, it is scary to see that more and more folks around the nation are milling about with fewer or no masks.
In the Washington, D.C. metropolitan area, folks are done with the virus. They’re going into shops, restaurants and bars and hanging out in close proximity.
They have no patience for those like me that remain vigilant on social distancing, mask-wearing and severely limiting my time outside of the house.
And lo and behold, the virus is roaring again.
SARS-CoV-2 Cases U.S., Texas & Florida — Source: Bloomberg Finance, L.P.
Cases are surging, particularly in states that moved to unlock earlier and more aggressively. Overall new cases in the U.S. are now rising daily at levels exceeding March. And in Texas and Florida, new cases are hitting record levels.
And now Houston and neighboring counties as well as Oregon are thinking of re-locking. This is also being threatened by the governor of New York for New York City.
Even Beijing is re-locking neighborhoods and all schools following a new series of outbreaks initially associated with the city’s major commercial food market.
This is a warning for me that the U.S. stock market isn’t fully comprehending the reality of the virus. And the recent shocks in the S&P 500 Index reflect that we are far and away from a virus-fixed economy and markets.
S&P 500 Index with 50-, 100- & 200-Day Moving Averages & Fibonacci Retracement Levels — Source: Bloomberg Finance, L.P.
Moreover, as I noted in last week’s webinar, there has been a surge in individual investor interest in wildly speculative stocks, particularly in travel-related sectors such as airlines, hotels, cruise lines and rental car companies.
I appreciate that many are looking past the virus. But to get there, each of the companies in these highly challenged industries needs to survive. But status is not in their favor right now.
I’m keeping an eye on these industries and companies. But in the meantime, the value plays are the alt-travel and leisure companies, including Thor Industries (THO) and Marine Products (MPX) as well as Compass Diversified (CODI) with some of its related companies.
Now for the good news …
U.S. Retail Sales — Source: U.S. Census Bureau & Bloomberg Finance, L.P.
Retail sales for May showed a gain of 17.7%. The data show pent up demand for clothing and other discretionary goods, underscoring what I wrote in the June issue — there are more folks with jobs and ample savings in the U.S. economy. And for those that have tragically lost their jobs or have been furloughed, state and Federal aid are helping.
U.S. industrial production data for May are showing a turn as well with some of the resumption in US factories. The gain was 1.4%, which is huge on a month-by-month basis.
U.S. Industrial Production — Source: Federal Reserve & Bloomberg Finance, L.P.
Looking forward, another bit of data points to the need for more production: business inventories.
U.S. Manufacturing Inventories — Source: U.S. Census Bureau & Bloomberg Finance, L.P.
A -1.3% decline in inventories might appear to be a negative, but in the reality of the current economy, it shows that there has been a runoff of products related to lockdowns.
Resumed demand will likely follow with more production as well as pricing power by many companies, including for Thor, Marine Products, Compass Diversified and other companies inside our model portfolios.
SCOTUS for the Win!
The Supreme Court of the U.S. (SCOTUS) recently handed down a huge decision that is a major victory for two companies in the Incredible Dividend Machine.
SCOTUS overturned the ruling that the U.S. Department of Agriculture and the U.S. Forest Service do have the authority to grant permits for the Atlantic Coast Pipeline.
This paves the way for the natural gas pipeline to be completed by next year to bring gas from the Marcellus Shale (West Virginia) through to Virginia for Dominion Energy (D) and Duke Energy (DUK).
The pipeline will bring natural gas to Virginia and the Mid-Atlantic, which is a natural-gas-hungry region. It also helps get gas to its Cove Point export facility in Maryland and down to the Carolinas as well.
Lastly, a quick word on Nestle (NSRGY). It just announced a new pet food line to reduce human allergic reactions to cat hair. Its Live Clear products will only add to its impressive and growing pet food and care products, which is adding to its successes in human products as well.
Bottom line: The virus isn’t done. The markets are still at risk, but there are signs of recovery. In this environment, the companies that you should own need to have good status, and you need to be prepared to deal with market volatility for some time.
All My Best,
Neil George
