Market Musings for January 2020

The Market was hammered today, down on Coronavirus fears and the potential for a global slowdown. Was the selloff warranted? or an overreaction in the heat of the moment, where much about this contagion is still unknown? The entire market was ravaged, including growth juggernauts like Microsoft MSFT and Apple AAPL who just recently crushed earnings expectations. The across the board selling makes me think that this is more algo driven, since software and cloud should not be impacted by risk of the disease, and Apple is shifting its business model to focus more on services and subscription based revenue.

The US Equity market for Friday January 31st 2020 showing weakness across the board with only a few exceptions, Amazon being one of them after beating earnings expectations by a wide margin.

So where does this leave us going forward? With January 2020 in the books, where do you put money to work? Lets take a look at where we are for the year so far.

As you can see, Big Tech, much like it did in 2019 is carrying forward its out-performance into January 2020. Even with a lousy end to January, Google GOOGL Amazon AMZN Microsoft and Apple are all up big for the month. These companies are continuing to grow and are not showing signs of stopping. So do you ride the momentum? or try to pick up some value along the way with some of the other sectors that have gotten unfairly beaten up by the market selloff?

The Investment banks have all taken a beating despite most of them beating earnings expectations, but with the FED lowing rates, Net interest margin, how traditional banks make the majority of their revenue, is compressed. The Energy sector has been getting destroyed and dividend yields are starting to look very attractive, but the commodity risk of oil still remains. The Drug manufacturers have gotten beaten down in January and are generally a safe bet with patents protecting future cashflows, but the threat of a healthcare overhaul by the next US presidential administration looms and could possibly put an end to that party.

I think that Big Tech and Large Cap growth will continue to outperform this year, and is exposed to the least amount of risk. Apple will soon be riding the 5G wave as consumers look to upgrade their phones. Amazon continues to dominate the online retail sector and with AWS is establishing itself as a “go to” provider of Cloud services. Microsoft has a monopoly on windows based office products and is also a huge Cloud player with its AZURE product. These are all secular growth stories. That being said, there are deals to be had in these other areas, but you have to be picky, go for best in class, and somewhere that has some dividend protection that can pay you while you wait for the stock to recover, like an Abbvie ABBV or a Chevron CVX These are both large well run companies with tremendous cashflows and outstanding dividends.

Abbvie currently yields over 5.5% and has consistently raised its dividend and returned value to shareholders via buybacks. It currently sells the most commonly prescriped rheumatoid arthritis drug in the world HUMIRA, and in 2018 the drug was responsible for 20 billion dollars in sales. Abbvie is also a great innovator with a strong portfolio of drugs, and future pipeline.

Chevron is one of the worlds largest integrated petroleum producers, and yields over 4.5%. They also have strong cashflows despite oil prices being low for quite some time. Chevron is better positioned than most of its peers from a debt perspective and has better profit margins.

Well those are my thoughts for today. Please do your own research and investigate these names for yourself. I am not recommending these stocks only trying to highlight their strengths. Remember, be patient, don’t trade scared, and buy when there is blood in the streets. Also, I welcome comments, interactions and appreciate feedback. Don’t forget to follow me on Twitter @Optimize_Pete

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