I have not done well in the markets for the last six weeks. Here is why:
- Overweight in Life Insurers. Yes, they are in better shape than the banks, but that only means they got hit later, not that they would not get hit.
- Too much economic sensitivity. I felt that global demand would hold up better than US demand, but that only means they got hit later, not that they would not get hit.
- I suspect that hedge funds have been blowing out my positions.
I’ve ben talking about stock survivability lately. What does that mean?
- Low levels of short-term debt. Few major debt maturities coming in the next three years.
- Low levels of total debt relative to tangible capital.
- Still earning money and producing free cash flow, even in a tough environment.
- If a company is cyclical, it has slack assets, particularly cash equivalents. High current and quick ratios.
- If not a financial, trading at a historically low price to sales ratio. If a financial, trading at a historically low price to book ratio.
- Good accounting quality and corporate governance.
- A leader in their industry. It would be difficult to lose them.
With a little work on my side, I came up with 80+ names to consider, that I think fit the above criteria, mainly:
AAPL ABX ADBE ADP AFG AHL ALL APA AXS BBOX BHE BHI BHP BWA CAS CB CF CHV CINF CLF CMI CRH CSL CTSH EBAY ENH FCX FDS FSR GD GPC GWW HANS HAR HCC HMN HON IBM ITW LNT LOW MHP MMM MRO MSFT MTW NKE NOC NOV NUE NVDA ODP OKE ORCL OXY PC PEP PL PRE PTP RE RHHBY RIO ROC ROCK RTN SHLM SIGI SYK T TEX TMO TRV TYC UTR VCLK WAG WBC WDC WRB Y ZMH
This is a portfolio that I think will do well even in tough environments. I will be buying some of them on Monday, and let you know what I did.
I would add PM and MO to your list.
Do you mind explaining CHV (“blank check company”)?
I’ve ben talking about stock survivability lately. What does that mean?
Low levels of short-term debt. Few major debt maturities coming in the next three years.
Low levels of total debt relative to tangible capital.
~~~~~~~~~~~~~~~~~~ this is comforting, we’re headed in the right direction, this is the way out!
I suspect David meant CVH, the health insurer.
Good set of rules overall. However, I am finding that covered calls (and shorting out of the money puts in some cases) on quality companies are working decently in this market environment. Implied volatility readings are through the roof and given how difficult it is for any one stock to sustain a rally, it is worth capping upside potential in exchange for a lower cost basis.
Sorry, it was a typo – I meant CVX, Chevron. As for PM and MO, I don’t do tobacco stocks for ethical reasons.
Michael, that can work… I don’t do much with options, though.
Too many cyclicals for my taste, prefer to get some indications of commodities prices bottoming before buying those.
Liked the P&C Insurance and Tech recommendations (bought AAPL and ADBE, no debt, cash positions, and strong cash flows, waiting for Cisco to fall before buying)