IS PRESIDENTIAL CANDIDATE JOE BIDEN ON THE RIGHT TRACK WITH HIS ECONOMIC PLAN?

2020-07-19 -

Promising massive tax hikes and sweeping regulations appears the wrong move for an economy reeling from pandemic shutdown. Endorsing radical regulations, including support for similar regulations as California’s AB5, to be imposed upon the nation will undermine the economy. These job-killing regulations would eliminate entire industries and millions of jobs, taking away the ability for millions of Americans to earn a living. This spells doom for the stock market and hurts businesses more broadly.

San Diego Institute for Economic Research

Biden’s plan includes a number of positive components such as increases in federal R&D investment in new industries and technologies, training programs for workers, and steps to lower the vulnerabilities of supply-chains for critical products. However, the plan also includes significant initiatives that would make the country’s procurement and trade practices more protectionist. These could lead to greater tension with trading partners and result in retaliation and higher costs for federal government contractors.

San Diego State University

A normal broad aggregate demand fiscal stimulus will not work as a lot of structural damage has been done to the economy, with a lot of businesses closing for good and supply chains adversely affected. The U.S. government buying American-made products can give a targeted boost to manufacturing and focusing on education and research and development will improve competitiveness and help technological development. More needs to be done, but that is addressed in his policies on clean energy, health care, labor, etc.

University of San Diego

Either answer works here, as there are flaws in all such plans, but as a political cynic, I believe that both Biden and Trump will say whatever they think voters want to hear. Personally, I support free trade and global hiring if it serves our U.S. firms and consumers. Someday we will need to tax more and spend less. We do not yet know the details, and anything extreme will not pass anyway. But the 2021 president will have one heck of a mess on their hands and it will not be easy.

University of San Diego

NO NO YES YES

COVID and trade wars have taught us that the U.S. economy is vulnerable to sudden knee jerk reactions by a president. COVID has taught us that our manufacturing can come to its knees if our factories don’t have the parts we need because they are all produced in foreign countries. Add that to dropping our memberships in well respected international organizations and we have meandering policies and insecure industries. Biden will be a calming effect, will invest in long-term infrastructure and allow private industries to be more competitive.

Manpower

The Biden “Build Back Better” plan has the right touchpoints for economic recovery. The progressive, “New Deal”-type platform rightly prioritizes education, investing in alternative training, research and development, increasing innovation and competitiveness, and manufacturing, which will revitalize the sector and close the supply chain gap. The hoped-for bi-product is jobs — lots of good ones — to close the wealth divide. Well executed, all these are the right elements to lift America from its economic conundrum.

Jacobs Center for Neighborhood Innovation

While supporting American businesses and investing in American manufacturing and R&D is a good idea, the economic plan as proposed does not indicate how we will pay for it. Biden’s economic plan will likely bring Americans higher taxes and more regulations which will not bode well for our pocketbooks, the stock market, or for American businesses. Increasing government bureaucracy is not the right path for our economy to thrive.

Intellisolutions

Biden’s push to buy $400 billion domestically requires more specificity and potentially shows how much he is playing for the middle in a country wrenched to the right by Trump. While select protectionism and strategic production can make temporary sense, especially to curb unfair practices by other countries, I remain a believer in efficient trade. Biden’s proposed $300 billion spending on R&D and education are refreshing, long-term investments.

Weave Growth

YES YES NO NO Oily technology

The COVID-19 pandemic has hit the oil industry hard. It’s going to take a long time for oil to recover, and some think it may never fully bounce back. Yet investors can still profit. Oil and natural gas remain the fuels that power much of global transportation, feeding manufacturing and electricity delivery. Renewables are becoming more important and will eventually displace hydrocarbons, but that’s likely to take decades. In the meantime, consider Core Laboratories (NYSE:CLB).

Core Laboratories is a major oilfield services provider, but it’s not the typical pick-and-shovel contractor with expensive equipment to maintain even when nobody’s hiring. It uses proprietary technology to analyze oil and gas wells to help producers maximize every dollar they spend developing those resources. That business model can help it ride out even this brutal downturn, and the services it provides are critically important to producers when they start drilling again.

With shares having fallen more than 80 percent over the past three years, Core Laboratories seems very undervalued. It aims to pay out a large portion of its free cash in dividends during healthy parts of the market cycle. That dividend was recently dropped to a penny per quarter, but when business picks up, investors can likely count on a nice dividend stream from the company. (The Motley Fool has recommended Core Laboratories.)

How fast is that growing?

To be a successful, active investor, you’ll need to do some math — such as when you want to calculate how rapidly a company’s revenue is growing. Fortunately, it’s not rocket science.

Imagine that Scruffy’s Chicken Shack (ticker: BUKBUK) had revenue of $6 billion in 2016 and $15 billion in 2019. You could figure out that growth rate with a fancy calculator, but here’s how to do it on your own:

Divide $15 billion by $6 billion, and you’ll get 2.5, meaning that revenue multiplied by 2.5 over that period. You might think that’s a 250 percent gain, but it’s not. (Remember that when something doubles, it increases by 100 percent, not 200 percent.) To arrive at the correct percentage, take the growth multiple of 2.5, subtract 1.0, multiply by 100, and tack on a percentage sign. Voila — you’ll get 150 percent. So revenue grew by a total of 150 percent between 2016 and 2019.

You could also have taken the $15 billion and subtracted the $6 billion, getting $9 billion in growth. Then divide the $9 billion by $6 billion, and you’ll get 1.5. Multiply that by 100, tack on a percentage sign and you have the same result — 150 percent.

If you can handle some trickier math and you have a computer or decent calculator, here’s how to annualize the growth rate (to see how much Scruffy’s revenue grew, on average, each year). Start by determining the time period: In our example, from 2016 to 2019 is three years, so you’ll need to raise the growth multiple of 2.5 to the 1/3 power, perhaps by punching in 2.5 ^ 1/3 or 2.5 ^ 0.333. That will give you a result of 1.36, reflecting a 36 percent annualized growth rate. (If the time period had been 10 years, you’d raise the multiple to the 1/10, or 0.1 power; if it had been two years, you’d use 1/2, or 0.5.)

Don’t let the math scare you. If you really want to learn it, you can, but you can still succeed without it.

Long-term loss

I recently read that shares of Cisco Systems have still not recovered from their drop when the dot-com bubble burst in 2000. Is that true? And if it is, how can I avoid investing in a company like that? — P.T., Paramus, N.J.

First off, understand that Cisco Systems isn’t necessarily a bad company or bad investment. The problem was the bubble — people continued to buy shares of increasingly overpriced stocks, sending their prices up further, until the bubble burst. While many of those companies flamed out, others were solid and kept growing.

It is indeed true that, 20 years later, Cisco’s market value remains lower than it was before the bubble burst. That’s true of other solid companies, too, such as Intel. It took Microsoft and Oracle much more than a decade to surpass their pre-crash highs.

To avoid ending up with a loss that won’t be overcome for 20 years, pay attention to valuation when you buy a stock. You should buy high-quality companies, but not at any price. Aim to buy stocks that seem undervalued — perhaps with their price-to-earnings (P/E) ratios significantly lower than their five-year average P/ES, or with priceto-sales ratios significantly lower than those of their peers. You can also ask yourself whether their market value seems reasonable.

What are capital gains? — L.D., Eugene, Ore.

If you own and sell an asset such as a stock, the increase in value over the purchase price is your capital gain. If you sell for a loss, you’ve got a capital loss. Your gain or loss on an investment before you sell it is an “unrealized,” or “paper,” gain or loss.

Bad stock tip

My dumbest investment was listening to the son of a hedge fund manager, who offered a stock tip. That position is currently down 70 percent. Luckily, it’s a small position. — D.F., online

The Fool responds: It’s natural to be interested in finding extremely promising investments and to keep our ears open for good ideas. But don’t act on any stock tip without doing your own research first. Remember that in most cases, you won’t know the track record of the person recommending a stock; it could be that only 40 percent of his recommendations have worked out well. (That might be fine for him, if they perform so well that they more than make up for the other 60 percent of losses.)

Hedge fund managers may seem like good people to get investment ideas from, but many hedge funds don’t perform all that well, despite often charging shareholders very steep fees. Indeed, at the end of 2017, super-investor Warren Buffett famously won a 10-year bet against a hedge fund manager: that the S&P 500 would outperform the manager’s handpicked group of hedge funds.

For best results, do your own digging into companies of interest, checking out how healthy they are (in terms of cash vs. debt), how quickly they’re growing, what their sustainable competitive advantages are, what risks they face and how attractively they’re priced. Diversify your holdings, too, by putting your eggs into multiple baskets.

Name that company

I trace my roots back to 1967, when my founders incorporated me and then applied to serve the Dallas, Houston and San Antonio areas. In 1971, I got my (now misleading) current name. At the end of 2019, I employed more than 60,000 people, and I recently became the world’s largest airline (in terms of scheduled seats). My fleet recently encompassed more than 700 Boeing 737s and, pre-pandemic, served more than 100 destinations — with 4,000-plus departures each weekday. I’m a rarity in my business, as I’ve been profitable for 47 years in a row. Who am I?

Last week’s trivia answer: Autozone

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