Today’s news:
• Another media-created panic
• The most attractive industry with M&A prospects in 2020
• A special note to Financial Advisors
THE SKY IS FALLING! (until the next panic du jour)
Once again, the media has done a splendid job of creating fear and panic among the citizenry. I can name three similar situations in the last couple of years, including “RECESSION!!!”, which completely failed to pan out in reality. Now we have a viral infection traveling around the globe this winter, similar to the flu or the common cold. Lots of people catch the virus, and a small number of sick people die, almost always people who already had compromised health situations. Lather, rinse, repeat. (Literally. You should be doing that a lot these days.)
Here’s a novel idea: Take care of your health. Cut way back on your sugar, food preservative, alcohol, smoking and drug consumption, and your body will be far more prepared to reject germs that will otherwise find a responsive home. (I don’t know how it is that people don’t comprehend that the aforementioned items weaken their immune systems, but I run into such oblivious people constantly, so I harp on the subject.)
Granted, this particular virus seems to have been purposely created in a government laboratory, so that’s not a terribly confidence-boosting fact. Nevertheless, thus far there doesn’t seem to be any reason whatsoever to treat this virus differently than the flu. Yet governments and news media are treating it like the plague. I wonder why? I’ve certainly got my theories, but we’ll leave all that for social media discourse.
Right now, investors are dealing with the fallout from the media’s scare tactics. Your news stations are going to be harping on the virus intensely, until they switch gears and fabricate the next crisis du jour. (As you can imagine, I don’t “tune in” to news media, ever. So I never fall for their hype and fear-mongering.) I just hope the government doesn’t start doing anything ridiculous like grabbing sick people and forcing them into isolation at specific pre-approved locations, because that’s going to create an upheaval among the citizenry that’s far uglier than anything you’re witnessing in the stock market right now. This is not China. People in the U.S. are not going to sit back and accept such behavior.
The stock market’s probably going to fall again today, Friday, February 28. We’re near the bottom. Nobody needs to be in a hurry to “buy low.” The market’s going to have to stop falling and establish a base before stocks can recover. At that time, there will be bargains galore.
This is a good time to research a group of stocks that you might want to buy in March or April. I’ll be writing about various types of stock opportunities in the coming days, but there’s no point in my getting too specific right now about which stocks to buy, because they’ve got to stop falling first. Generally speaking, you want stocks that didn’t fall too far, vs. stocks that plummeted, because the former will be the ones that recover more quickly. As you ponder some new portfolio holdings, read further for my ideas on which type of stocks will be “must haves.”
THE MOST ATTRACTIVE INDUSTRY WITH M&A PROSPECTS IN 2020
Merger and acquisition activity tends to be somewhat cyclical, ebbing and flowing, often in tandem with economic cycles. The activity tends to be concentrated in a specific industry for a little while, then another industry the following year. Back in 2016, both chemical stocks in my portfolios received buyout offers: Axiall (AXLL) and Chemtura (CHMT).
In recent weeks, investment banker Morgan Stanley (MS) announced the acquisition of discount broker E*Trade (ETFC). Additionally, global investment manager Franklin Resources (BEN) announced the acquisition of Legg Mason (LM), a smaller global investment manager.
I’m not surprised at this spate of financial industry consolidation, and I expect more M&A activity among investment management, life insurance and annuity companies. That’s because the multi-year trend toward lower asset management fees, expense ratios and sales charges is causing financial companies to search for additional ways to generate profit growth. Some of you may recall that I published a Takeover Stock Report in 2017, with the names of five attractive small companies that would make good takeover targets. Three of those companies, including Legg Mason, subsequently received takeover offers and the accompanying share price surges.
There’s more to this story, and it’s a big coincidence that demands attention. I keep a Buy List of undervalued growth stocks at-the-ready. When there is a preponderance of a certain type of stock within the list, I sit up and take notice. The list currently holds far more financial stocks than those from any other sector, at least half a dozen of which are investment management, life insurance and annuity companies. They wouldn’t be on the list if they didn’t have strong earnings growth prospects and low price/earnings ratios (P/Es). To reiterate, this is a list of undervalued growth stocks, with share prices that have been drastically reduced due to the market correction, almost every one of them paying a dividend, and they’re sitting in a sweet spot of potential M&A activity. Here they are:
Ameriprise Financial (AMP)
Athene (ATH)
Brighthouse Financial (BHF)
Equitable Holdings (EQH)
Goldman Sachs Group (GS)
Lincoln National (LNC)
Voya Financial (VOYA)
Of these seven excellent companies, Athene and Brighthouse have the most attractive price charts – “attractive” being a relative term during a market correction. I would guess that these two are capable of settling down and then rebounding faster than the others.
As you contemplate which stocks to add back into your portfolios in the coming weeks, seriously consider one or more of these investment, life insurance and annuity companies.
A SPECIAL NOTE TO FINANCIAL ADVISORS
I have been in your shoes. You work at B Riley, LPL, Merrill Lynch, Morgan Stanley, Raymond James, RBC, Stifel, UBS, Wells Fargo and a host of smaller companies. Each of you is receiving panicked phone calls from investors, and also excited phone calls from investors who are prepared to buy low. (Also, angry phone calls – I’m sorry!) Please feel free to send me your clients’ stock market questions during this period of market turmoil … not 20 questions per day, but one or two each day is fine; the more specific, the better.