FIVE WAYS INVESTORS CAN PASS THE TIME DURING COVID-19 CRISIS
Peter Hodson’s ‘bear market bingo’ could help save you from going crazy at home.
How do you tell when you are in a bear market? Well, every day my son asks me how the markets did. When I find myself saying, “They only fell two per cent,” then I know we are in a bear market. And so it goes.
But this bear is different, because the whole world is stuck at home, and investors, like me, are likely going crazy with market volatility (nothing new in a bear market) but this time investors are also trapped with stuck-at-home boredom. So, to help you pass the time, here are five things you can watch for in today’s unusual investment world. Think of it as “bear market bingo.”
1)
Track the coronavirus stock plays
This is perhaps the most exciting game for the viewers stuck at home. That’s because — guess what — some stocks can still actually go up, if they are in the corona-virus-treatment-or-vaccine space. Let’s take a look at the players: Alpha Pro Tech (APT on NYSE) makes masks — shares are up 343 per cent this year; Inovio (INO on Nasdaq) has been promoted as a possible novel coronavirus vaccine maker — shares are up 125 per cent this year; Regeneron (REGN on Nasdaq) is likely a far better play, making test kits and working on a treatment — with shares up 32 per cent; Moderna (MRNA on Nasdaq), another possible vaccine play — shares are up 61 per cent year-to-date. Play at your own risk.
2)
Play ‘Who will cut or cancel their dividend next?’
These days, we can barely keep up with all the dividend cancellations and reductions. A&W Income Fund, Vermilion Energy (twice), NFI Group, European banks, BRP Recreational Products, Inter Pipeline, Cenovus Energy. Investors are — rightly so — freaking out about the sustainability of their dividend income streams. Everyone knows a high yield equates to higher risk. Or at least they should. We counted today 108 Canadian issuers with current yields greater than 10 per cent. We would expect at least half of those to cut their dividends this year.
3)
Watch the doomsayers Markets are down, so this is the time for the doom-andgloom crowd to shine. A simple check on Twitter will convince you we are all going to be standing in bread lines next month, as banks implode and tenants go on rent strikes. The news is bad, and there is a reason for stocks to go down. But assuming that things will keep going down can be a dangerous move. Think of a diet: If I lose 10 pounds this week, and 10 pounds next week, I am not going to totally disappear in 15 to 17 weeks. Most stocks are not going to zero (though some will). Play this game by seeing how low these doomsayer’s forecasts will go. We have seen some predicting 600 on the S&P 500, below the low of 2009. Can you find someone more bearish than that?
4)
Guess who will pull their guidance next
Admittedly, when the world is completely shut down, it must be hard for companies to do any sort of forecasting. Investors, at least, seem blasé now and are hardly surprised when companies left and right decide to stop forecasting revenue and earnings. Still, it can make for some interesting surprises, when companies such as Micron (MU) actually have the guts to make a somewhat positive forecast against all the backdrops of “no forecast.” Still, this will be an easy game to win: Simply pick any random company and odds are good that it is going to pull its revenue and earnings guidance.
5)
Spot the Great Depression comparisons
Let’s face it: Things are bad. We are going to get record unemployment numbers and a record decline in GDP. Yes, the numbers will likely be worse than the Depression of the last century. More than six million workers in the U.S. filed for unemployment last week. GDP is going to drop 40 per cent (on an annualized basis). A Google search for “economic depression” recently got 240 million hits. But nobody is going to be riding the rails in boxcars in this crisis (plus, it won’t be allowed due to social distancing). Still, the comparisons to the 1930s are going to start coming at us fast and furious. As a benchmark, unemployment peaked at 24.9 per cent in 1933. Who’s going to take the over/under on this?
We are not making fun of the markets here: Trillions of dollars have been lost, and some of it was ours. Instead, we are reminding investors the world is going to get through this event, as it has with all other prior crisis events. Financial Post
Peter Hodson, CFA, is founder and head of research of 5i Research Inc., an independent research network providing conflict-free advice to individual investors.