When the pandemic first struck, volatility on Wall Street spiked. It even rivaled the levels from the 2008 financial crash. But this time the fear index — also known as the VIX — remains stubbornly high. This is partly due to the virus. The rest come from the shenanigans that politicians are causing. This makes it hard to find stocks to buy to withstand the looming potential outcomes.
The United States is going into a presidential election in just a few weeks. Both sides are acting crazier than the usual. They are playing political football with a second potential stimulus bill. Both sides want to inject money into the system. At the same time, they are standing in each other’s way. It’s feeling less and less likely a deal will happen, so they are doomed to loiter and do nothing until after the election.
The uncertainty in the stock market will linger through the rest of the year. But don’t let that stop you from getting long stocks, because indices are still making highs and breaking records. The leaders now are the stocks with the weakest fundamentals.
In spite of the risks, investors are buying the riskiest stocks. This shows there is no real fear on Wall Street. This happened in the dot com bubble only this time it has a different spin to it. Companies like Zoom (NASDAQ:ZM) are actually delivering hyper-growth so bulls have tangible reasons to chase. This morning we learned that Twilio (NYSE:TWLO) is making a $3 billion acquisition. The thing in question now is valuation expectations. In 2000 it was a pure chase of potential completely based on faith.
Meanwhile there are still great stocks to buy for the long term, regardless of the short term noise. Today we will make the argument for three of them in different industries that will do well regardless of who is in the White House come December. They are:
Stocks to Buy Now for Any Market Condition: Facebook (FB)
Facebook has always been a controversial stock. Management finds itself in hot water too often. That’s the price it pays for being so successful. When you have three billion users, you are going to ruffles a few feathers. There were data breach issues, then censorship, then lack of censorship, etc. The dips from each of those hiccups were buying opportunities.
This time it is not different. FB stock is under pressure because the company is under the scrutiny of regulators once again.
I don’t understand this fear because the company is going to come out ahead regardless. It has an incredibly healthy business derived from two of its three massive social media platforms. In theory, it still has almost a third of the business still as pure potential.
WhatsApp is the next cash cow that FB will monetize.
If the government is eventually successful at breaking the company up, don’t worry. It will then become three great companies: Facebook, Instagram, and WhatsApp. Each of these platforms has more than a billion active users from all over the world. Equity holders will have great choices to make. It’s like being offered pecan, pumpkin or apple pie. There isn’t a bad choice there.
We know that Facebook has astonishing usage metrics, but it also has excellent fundamentals. The price-earnings is in line with its rivals and the price-to-sales is reasonable. The investors are realistic with their expectations — perhaps too much so. Besides, management can tighten its belt if the macro-economics deteriorate.
Conversely, it is not scared to turn on the spending spigots to grow. It has done bold acquisitions before, like paying $19.6 billion for WhatsApp. These are evidence of a strong management with conviction.
Because it’s so strong, every dip looks like a buy opportunity. There never is a perfect signal to get in, but owning Facebook stock for the long term is not likely to be a mistake.
Picky buyers could wait for a dip into $235 per share, where it will find support.
The best opportunities are often clouded by extreme hate. That is the case with the energy sector . Wall Street cannot stand it right now, for many reasons. The quarantine killed the demand for fuel, and it’s still depressed. Even before the virus outbreak, there was a wave of ESG investing putting downside pressure on fossil fuels. The price of crude oil is well below where it was just a few years ago. Consequently, most companies in that industry are struggling to stay alive. They are operating at a loss just to service the debt they carry.
The problem is they took on that debt when crude oil was near $70 barrel. It is now around $40. There is virtually no expansion in the center so it’s become a stagnant investment. As a result, the CVX stock price has collapsed from $123 per share to barely $75. This has really driven up the dividend yield. The dividend itself hasn’t changed, but the price of the stock has. So CVX stock now pays a juicy near-7% dividend. That is reason enough to own the shares for the long term for those who like fixed income.
Sure, this is not a company that’s going to see growth anytime soon without a miracle. On the other hand, it’s not on the brink of disaster either. Investors have few options where they can collect dixed income. Bonds in the U.S. barely pay any yield. Overseas it’s even worse because of negative rates. The acronym TINA (there is no alternative) not only applies to U.S. bonds but also to stocks especially the dividend payers like Chevron.
Investors who have not yet sold their shares waited too long. It’s best to hold it now and just enjoy the payments. The stock price is at a levels that have been in contention for two decades. Oil prices are trying to stabilize, so downside potential looks minimal compared to the yield. Any upside in capital appreciation would be bonus.
Dividends are cool but they are also a double-edged night. Management has vowed to uphold the dividend at all costs, but I’ve seen people renege on their promises before. If that happens here, CVX stock will take another tumble. It could even reach or breach the March lows.
It is important to understand that the thesis today is not to make money off of CVX price appreciation. Although this will be a nice perk, the goal is to create consistent income from an asset. This is a place to park money at a much higher rate than inflation.
SPDR Gold Shares (GLD)
Everybody loves gold. It’s an excellent investment asset for the long term. You can trade around its rallies and corrections, but it does its best work as a perpetual hedge. Count how many times you say the word “trillion dollars” these days. I bet it is more than in the past, which means that money is losing its value. We need another form of asset to hold value that the governments can’t touch.
Luckily GLD stock is a liquid alternative to owning physical gold.
In 2011, gold had a great rally that ended in tears. It took it almost a decade to recover. And ironically, it was the pandemic that woke people up to its importance. Earlier this years, the GLD stock finally buried the hatchet from 2011. Gold finally made a new high. It has since corrected about 10%, but that is part of normal price action. After a 170% rally, it deserves a rest. The whole thing started when the U.S. Federal Reserve flipped its strategy back to QE late in 2018. The bid for gold started because investors knew that the Fed had announced its war on the U.S. dollar.
Anyone can buy gold as an investment. It is readily available even in retail shops without needing an investment account. It can take many forms and you can even wear it if you so choose. The point is that investments are not always about charts. Sometimes it’s a simple concept as owning shiny yellow metal.
When there is so much fear, investors should overcome it and seek stocks to buy into it. Most headlines don’t change the normal path of price. It is best to ignore the noise and focus on the actual dots on the charts. They say price is truth and they are right.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Nicolas Chahine is the managing director of SellSpreads.com.