John’s Commentary – Nov 21 2018

Now is the time that I would want a portfolio to be more-or-less fully-invested in equities [according to each portfolio’s normal definition of such a position]. If the market does go lower, I expect that the decline would mostly be felt by big, popular “tech” stocks whose future prospects are now gathering doubt. Previously mentioned negatively AAPL, FB, and NFLX are the best examples, though MSFT, GOOG, AMZN and the like would certainly experience sympathetic selling.

Having come full-circle in my advice from my first NOTE and with the S&P down 10% in that time [with AAPL, FB, NFLX faring much worse], it makes sense to review the overall stance on specific areas and individual issues.

I would still stay clear of most electric utilities and consumer staples. With Verizon VZ having performed so well as a substitute for utilities, I no longer recommend buying it. Remain cautious on most retailers, but like BOOT. Still do not like FB, NFLX, APPL, or other big widely-loved big-cap “tech” stocks, with the possible exception of AMZN for those who love it, understand its dynamics, and are willing to look very long-term.

Still like the oil companies that can drive big production increases at low cost and high payback. I expect M&A activity centered on the Permian Basin companies from within [consolidation] and without [big outsiders looking to get in] that group of operators. This area has driven an unprecedented 20% increase in U.S. oil production over the last year – making the U.S. the world’s leading producer. See prior recommendations.

Still like the homebuilders – which remarkably have tread water over the last month despite the bad headlines. TMHC, TPH, KBH, MDC

Still like the semiconductor companies that are driving innovation or that are key to implementing innovation [the equipment companies]. This is a risky call, but these companies have come down to remarkably low valuations in the last week and are worth buying for their long-term secular outlooks regardless of the cyclical inventory/trade problems currently bothering traders. Semis in rough order of current preference: AMD, MLNX, NVDA, MU, IOTS, QCOM, LITE, NXPI, CY. Equipment companies: LRCX, AMAT, RTEC, ICHR

Still like gold [GG, GDX, GDXJ] and silver – especially silver. WPM, with its decent exposure to silver, looks extremely attractive.

Still am intrigued by the larger U.S.-based cannabis companies listed in Canada: CuraLeaf LDVTF, Charlotte’s Web CWBHF, and MedMen MMNFF. The latter has very attractive stores with over $7000 in sales per square foot, which is the highest of which I am aware – even beating Apple, the prior retail sales champ. STZ is still a good way to invest in this area and still sleep well at night, though the payoff there is strictly long-term.

Still like 5G development: IBM, RHT, CTL, ZAYO, and, a little lower, DISH.

Still like cloud/productivity tech: IBM, TWLO, BOX, ADSK, DVMT [to replace prior VMW], DATA, SPLK, MDB

A growing number of industrial companies are enticing. There are many to choose from, but those I have mentioned previously are AJRD, BWA, IOTS, DWDP, ARNC, LYB – plus a few new ones HRS, PKI, APTV and ALB.

Another area i have highlighted as attractive – without giving many names – is the biotech area. Abbvie ABBV remains very attractive – and has a great dividend. Biotechs in general are beginning to resist the down-trend in the future[only]-dependent area of the market, so I will finally name a few of many that would make cautious additions to a portfolio grouping of such companies. My first relatively safe choice would be SGEN, which just had a 6th indication approved for its new cancer drug Adcetris. It received a Breakthrough Therapy designation and was approved in less than 2 weeks from filing of its NDA! SAGE is another company with product coming to the market. Rounding out a list would be VYGR, NKTR, SGMO, CTSO, FPRX, CRBP, and NVTA.

Finally, an area that has not received any specific attention here, media/entertainment was mentioned as an area full of change and opportunity. Currently attractive are CBS and BATRA. At somewhat lower prices, TRCO, DISH, and DISCA become worth considering. I will add a few more names soon.

Also coming soon, I will discuss some REITs as an alternative to utility yields. Certain sectors of real estate, especially when combined with good management, are more likely to offer better growth, less risk, and better yield than can generally be found among the electric utility industry. Current market concern over interest rates and real estate make this a good time to take another look at this area.

John Stewart
Chief Investment Strategist

By | 2018-12-13T14:14:54+00:00 November 21st, 2018|John's Notes|0 Comments