There are not any top picks, or pans, for 2020 at hand. The modus operandi here tends to be predicated upon our stock market (VOO) gaining most of the time, amid occasions when it stalls or declines. Hypothetically, if the market were down the first day of the year, and you then invested in an index fund, you should beat the market that year. However, if you could accurately pick out a stock or two that should beat the index anyhow–and it corrected–we could make a difference.
There are reasons to suspect jitters as we enter 2020.
There is renewed violence in the Middle East, involving Iraq and its close ties with Iran for defense. It is an unfortunate situation–particularly since there were no weapons of mass destruction for Tommy Franks to find in 2003–and consequences have been persistent since. (There has also been violence coincident with departure of key US officials, such as near the Strait of Hormuz after the resignation of Defense Secretary Jim Mattis). Here is a current headline.
Armed conflict is hopefully avoidable. Separately, high energy prices, that may be inter-related, can be a macroeconomic shock. Beyond that, on a strictly market-based perspective, there may be a potential tail risk to be wary of, if not reason for a severe correction.
Short term lending rates are enduring pressure such that, since September, the US Federal Reserve has been spending gigantic sums of money to suppress volatility. The problem is associated with the colossal, $984 billion, soon to be $1 trillion, deficit that our government is currently running. While in hindsight there are reasons to have a questionable view of the Clinton administration–the impeachment proceedings against him may have had greater merit than the incident case–there was a balanced budget under Bill Clinton.
Anyhow, if the deficit and the volatility in short term rates are directly connected, there perhaps would be a situation in which it worsens or gets out of hand. Should this happen, it could bring about horrific damage. Interest rates might rise rapidly amid a flood of debt. Foreseeably, stocks would be sold and the proceeds placed into safe assets, perhaps such as the US dollar, or other currency–though maybe not gold.
In such a scenario, and probability is not being assigned to it, is it easy to see that if cash were available, it could be well-spent after the crash?
Pertaining to individual stocks, I own shares of Achillion Pharmaceuticals (ACHN). The currently prevailing risk is that regulators block its purchase by Alexion Pharmaceuticals (ALXN). If that does not happen, there would at least be a return of just over 3.5% within six months; that is before Contingent Value Rights should be awarded. A market crash would not be a problem. However, without payment of $1 / share pursuant to Contingent Value Rights, the return may be low; particularly when considering the risk incurred if, for some reason(s), the deal is blocked.
There may be some other opportunities in biotech or biopharma also. There are also reasons for reticence. Thus, only pursuant to events such as plummeting share prices, such as that of the local Wave Life Sciences (WVE), that create a clear opportunity, will upside be considered. Wave has a recent Press Release, and there is reason for optimism. Its product is potentially better than UniQure’s (QURE), which has a similar technology that is administered differently. Even after the change shown below, while the stock keeps closing lower each day, there is no hurry to slow its decline here.
Pertaining to an enticing combination of technological innovation and countercyclical attributes, it seemed that Carvana (CVNA) was going to trade at under $100 per share in the near-term, after rising from under $70 in September. The stock declined when oil prices rose. OPEC recently agreed to cut output, supporting oil prices. After setting a recent high of $99.19, the stock is now closer to $90.
It is not obvious what will happen, but if $100 acts as a ceiling over the share price, and the overall market declines, it could once again be worth attention. It is an example of a company that may run out of money and thus need to issue new shares to fund itself. That type of fundraising method also could be an opportunity to buy shares.
If it ever goes to $15, hopefully a bundle of cash would be available to invest. An incipient Vroom may compete aggressively, eventually, and the established used car dealership Carmax (KMX) could become comparably digitized. However, it is not clear how extensive the supply of used vehicles is; though Carmax actively accepts customer trade-ins. There should be a better notion of the issues in the second half of this year.
My own account maintains a (losing) bet against LYFT. The company seems to be doing well fundamentally. However, it still has a long path ahead to profitability. Meanwhile the AB5 law, that presents a substantial challenge to it, is taking effect. At this point, my LYFT trade is essentially insurance against a market crash; or big correction. There may not be a payout, but panic is not being pursued.
It is my view that Peloton (PTON), the exercise equipment maker, may collapse. Evidently its treadmill is not selling well. Further, and this is something professional investors may have underestimated or completely missed, there is intense competition for similar products. Citron Research can be hyped by the media, and can be right; however, not all of the negative bets pan out. Qualifications in mind, here is a link to a comprehensive report. Like other recent initial public offerings, the Peloton corporation should be flush with cash, so a dire financial situation is not an immediate worry to those who see great future prospects.
In the past, discount retailers that specialize in women’s clothing such as Ross Stores (ROST), TJ Max (TJX), and Burlington Stones (BURL) have done very well year after year after year. There has not been any headline damage associated with Stichfix (SFIX), which I recall as like an online clothing subscription service. However, the recent IPO of Revolve Group (RVLV) could present additional problems for competing storefronts.
Revolve customers easily buy clothing using a mobile device (49.3% in 2018). It advertises via social media influencers. It sources its materials from China, which remains a substantial tariff and trade risk. However, the “Phase one” trade deal that is scheduled to be signed should improve sentiment among investors. It is seasonal, but differs from many other retail businesses as a festival during April and the early summer months are when it does best.
Personally, I am partial to Revovle’s model; and there are not many persons better at picking stocks online. However, further research on RVLV is required before opining on the stock. It could prove to be a winner in 2020.
Later in the year we have our elections. If the incumbent is defeated, it might bode well for companies that are struggling with tariffs. One among them is Harley-Davidson (HOG), a maker of expensive merchandise that frequently gets mediocre online reviews. Another is Polaris Industries (PII), which tends to win share in motorcycles but have serious problems with its core off-road vehicles business. Neither is a favorite. However, there is a price for most anything. Online magazines imply it should be much lower than the MSRP on Harley-Davidson’s LiveWire electric motorcycle. The $30,000 product has been years and years in the making.
Either way, select firms that are involved in 5G communications or cybersecurity can outperform.
The author owns shares of VOO.
There are reasons to suspect jitters as we enter 2020.
There is renewed violence in the Middle East, involving Iraq and its close ties with Iran for defense. It is an unfortunate situation–particularly since there were no weapons of mass destruction for Tommy Franks to find in 2003–and consequences have been persistent since. (There has also been violence coincident with departure of key US officials, such as near the Strait of Hormuz after the resignation of Defense Secretary Jim Mattis). Here is a current headline.
Armed conflict is hopefully avoidable. Separately, high energy prices, that may be inter-related, can be a macroeconomic shock. Beyond that, on a strictly market-based perspective, there may be a potential tail risk to be wary of, if not reason for a severe correction.
Short term lending rates are enduring pressure such that, since September, the US Federal Reserve has been spending gigantic sums of money to suppress volatility. The problem is associated with the colossal, $984 billion, soon to be $1 trillion, deficit that our government is currently running. While in hindsight there are reasons to have a questionable view of the Clinton administration–the impeachment proceedings against him may have had greater merit than the incident case–there was a balanced budget under Bill Clinton.
Anyhow, if the deficit and the volatility in short term rates are directly connected, there perhaps would be a situation in which it worsens or gets out of hand. Should this happen, it could bring about horrific damage. Interest rates might rise rapidly amid a flood of debt. Foreseeably, stocks would be sold and the proceeds placed into safe assets, perhaps such as the US dollar, or other currency–though maybe not gold.
In such a scenario, and probability is not being assigned to it, is it easy to see that if cash were available, it could be well-spent after the crash?
There may be some other opportunities in biotech or biopharma also. There are also reasons for reticence. Thus, only pursuant to events such as plummeting share prices, such as that of the local Wave Life Sciences (WVE), that create a clear opportunity, will upside be considered. Wave has a recent Press Release, and there is reason for optimism. Its product is potentially better than UniQure’s (QURE), which has a similar technology that is administered differently. Even after the change shown below, while the stock keeps closing lower each day, there is no hurry to slow its decline here.
If it ever goes to $15, hopefully a bundle of cash would be available to invest. An incipient Vroom may compete aggressively, eventually, and the established used car dealership Carmax (KMX) could become comparably digitized. However, it is not clear how extensive the supply of used vehicles is; though Carmax actively accepts customer trade-ins. There should be a better notion of the issues in the second half of this year.
My own account maintains a (losing) bet against LYFT. The company seems to be doing well fundamentally. However, it still has a long path ahead to profitability. Meanwhile the AB5 law, that presents a substantial challenge to it, is taking effect. At this point, my LYFT trade is essentially insurance against a market crash; or big correction. There may not be a payout, but panic is not being pursued.
It is my view that Peloton (PTON), the exercise equipment maker, may collapse. Evidently its treadmill is not selling well. Further, and this is something professional investors may have underestimated or completely missed, there is intense competition for similar products. Citron Research can be hyped by the media, and can be right; however, not all of the negative bets pan out. Qualifications in mind, here is a link to a comprehensive report. Like other recent initial public offerings, the Peloton corporation should be flush with cash, so a dire financial situation is not an immediate worry to those who see great future prospects.
In the past, discount retailers that specialize in women’s clothing such as Ross Stores (ROST), TJ Max (TJX), and Burlington Stones (BURL) have done very well year after year after year. There has not been any headline damage associated with Stichfix (SFIX), which I recall as like an online clothing subscription service. However, the recent IPO of Revolve Group (RVLV) could present additional problems for competing storefronts.
Revolve customers easily buy clothing using a mobile device (49.3% in 2018). It advertises via social media influencers. It sources its materials from China, which remains a substantial tariff and trade risk. However, the “Phase one” trade deal that is scheduled to be signed should improve sentiment among investors. It is seasonal, but differs from many other retail businesses as a festival during April and the early summer months are when it does best.
Personally, I am partial to Revovle’s model; and there are not many persons better at picking stocks online. However, further research on RVLV is required before opining on the stock. It could prove to be a winner in 2020.
Later in the year we have our elections. If the incumbent is defeated, it might bode well for companies that are struggling with tariffs. One among them is Harley-Davidson (HOG), a maker of expensive merchandise that frequently gets mediocre online reviews. Another is Polaris Industries (PII), which tends to win share in motorcycles but have serious problems with its core off-road vehicles business. Neither is a favorite. However, there is a price for most anything. Online magazines imply it should be much lower than the MSRP on Harley-Davidson’s LiveWire electric motorcycle. The $30,000 product has been years and years in the making.Either way, select firms that are involved in 5G communications or cybersecurity can outperform.
The author owns shares of VOO.