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Which Growth Stocks Are Really Value Investments?

The failure of many so-called “growth stocks” to surge ahead in today’s stock market has puzzled value investors. After all, the traditional use of measures, such as price to earnings ratio and price to asset ratio, has served many investors well over the years. But for many investments in the stock market, it is not working today! Growth stocks keep forging ahead while stocks with low price to asset ratios are lagging. The questions we want to bring up are which growth stocks are really value investments in disguise? And, which value stocks are really not so valuable?

Successful Investing by Seeing the Future

We commonly use intrinsic stock value as a guide to successful investing. This approach assumes that you can successfully predict the income stream that an investment will generate in the coming years. Then, you look at the current stock price as well as the financial condition of the company. Here is where the Generally Accepted Accounting Practice that is used to do the books may not serve a modern investor very well. There are factors that may overstate the value of a so-called “value stock” and understate the value of a so-called “growth stock”. The Wall Street Journal looks at the traditional way of measuring value stocks and offers some advice to investors.

Is “value” dead? Or have we just been measuring it in the wrong way?

It’s an urgent question, because value stocks-when defined according to the traditional criterion, low price-to-book-value ratios-have lagged behind growth stocks for at least a decade now. And though value stocks in the past have come roaring back after going through similarly long periods of lagging, some researchers are questioning whether they will do so again.

The point that the WSJ makes hinges of how “intangible assets” are treated in the world of accounting.  What is important when predicting the future of a stock is being badly represented in financial statements.

That’s because a growing percentage of companies’ market value now comes from intangible assets-things like patents, trademarks and research-and-development expenditures-that are either ignored in the book-value calculation or reflected inconsistently. Therefore, the researchers say, the price-to-book ratio has lost its relevance.

If they are right, we can’t expect stocks with the lowest such ratios to reassert their historical dominance over stocks with the highest ratios.

Stocks that keep going up are those that keep increasing their earnings. The value of many of these companies lies in their names, trademarks, and patents. The money that they pour into R&D comes back as new products, more efficient ways to produce their products, dominance of their market niche, and creation of totally new market niches. The market keeps rewarding the companies that are following this path because their earnings are steadily increasing. Which growth stocks are really value investments? The first trillion dollar company, Apple, fits the mold of a company that is steadily growing based on continual product improvement, strong R&D, and lots of patents. Johnson & Johnson and Microsoft, the only two companies with AAA corporate bonds as mentioned in our article about how to invest without losing money, also fit the mold. Until they change the way that “intangibles” are reported by the accountants, earnings may be the best guide to picking “value stocks.”

Which Growth Stocks Are Really Value Investments? PPT


Smart Ways to Predict a Correction and Protect Your Investments

Over the last few years you have ignored the nay-sayers who incessantly predicted stock market, real estate market, and economic crashes. You stayed in the market and have seen a rather nice increase in the value of your investments. However, all good things come to an end and those things include bull markets. But, after every stock market correction there will be a rebound. What are some smart ways to predict a correction and protect your investments in order to profit from the next upswing?

Market Corrections and Recoveries

Is There a Correction around the Corner?

There are signs of a market correction that you can watch for.

When the market keeps going up too many investors become impatient, looking for more and more profits. They forget risk management. An old piece of investing advice is that you do not have a profit until you take a profit. If you have done well with a volatile stock there is nothing wrong with taking a little profit, paying long term capital gains and holding on to cash until the market offers great deals again. Prior to the burst of the dot com bubble several well-known investors stated that they were essentially cashing out of the stock market because it made no sense. These folks were able to re-invest at very attractive prices a year or so later.

Today, according to CNBC, Deutsche Bank is cautious for the near term and expects a 3 percent to 5 percent pullback but a rebound later in the year.

Citigroup makes a similar prediction as reported in the same article. They use a proprietary formula that takes into account a brewing trade war, geopolitical uncertainty, Federal Reserve policies, and spreading weakness in emerging markets as part of a creeping economic weakness internationally.

There Is Always a Recovery, Somewhere

After all stock market crashes in recent memory there has been a market recovery. The S&P 500 fell from 1500 to 900 between September of 2000 and the beginning of 2003. Then it steadily rose again to a peak of 1560 before the financial crisis. At that time it fell to 680 by March of 2009. And, from there the index has climbed steadily for nearly a decade to 2870 today.
As we noted in our “signs of a market correction” article, smart investors decided that the market made no sense in the run-up to the dot com crash. And, smart investors saw the dangers of over-leveraged investments going into the financial crisis and got out. These folks all re-invested after the crash and resumed earning profits.

If you are a passive investor and just invest in index funds that track the S & P 500, you can expect the results like we just showed you. But, there were a lot of weak stocks with really poor intrinsic value going into both the dot com and financial crisis crashes. These stocks inflated the prices of index funds going into a crash. And these companies commonly went bankrupt and disappeared from the index after the crash.

Over the long term it is financially dangerous to follow the “rising tide raises all ships” method of investing. The stocks of strong companies go up because of strong earnings, strong products, and a margin of safety in the form of money in the bank and minimal debt. A company selling in the same market niche may see its stock go up based more on optimism than a fundamental-based promise of growth. Two stocks today that raise concerns are Facebook and Tesla. Facebook is looking at more regulation due to its prominent communication role in modern society and Tesla needs to start producing profits for investor get tired and start selling. Smart ways to predict a correction and protect your investments include culling out potentially dangerous investments, like Facebook and Tesla.

Smart Ways to Predict a Correction and Protect Your Investments PPT


Do Your Canadian Investments Depend on NAFTA?

Trump decided to renegotiate the 24-year-old North American Free Trade Agreement. This agreement created a free trade zone including Canada, the USA, and Mexico. NAFTA re-negotiations between Canada and the USA have stalled. Pundits see an “investment hesitancy” as investors wait to see how things will work out and what a new deal will look like. The question for those with investments north of border is, do your Canadian investments depend on NAFTA?

Is There a Problem with NAFTA and, If So, Whose Problem Is It?

Economic analysis indicates that the net result of NAFTA has been to improve the economies of the three nations involved. However, during the quarter of a century that the trade deal has been in effect, many workers have been displaced while others have gained new jobs. A large part of Trump’s appeal to his supporters is that he sees NAFTA as having been a big mistake for the USA and having hurt US workers.

Since the start of NAFTA, trade between the USA and Canada increased from $199 Billion USD a year to $518 USD a year. According to Investopedia in their article on the economics of NAFTA, the US per-capita GDP went up 39% while that of Canada went up 40%.

It would seem that the net result was about equal for the two nations. Nevertheless, negotiations are going forward albeit slowly. If negotiators cannot come to an agreement, or if they come to an agreement that hurts Canada, which investments will get hurt and which investments will see no adverse effect?

The Office of the US Trade Representative has data relating to imports from Canada.

  • Canada was the United States’ 3rd largest supplier of goods imports in 2017.
  • U.S. goods imports from Canada totaled $299.3 billion in 2017, up 7.8% ($21.5 billion) from 2016, but down 5.6% from 2007. U.S. imports from Canada are up 169% from 1993 (pre-NAFTA). U.S. imports from Canada account for 12.8% of overall U.S. imports in 2017.
  • The top import categories (2-digit HS) in 2017 were: mineral fuels ($73 billion), vehicles ($56 billion), machinery ($21 billion), special other (returns) ($14 billion), and plastics ($11 billion).
  • U.S. total imports of agricultural products from Canada totaled $22 billion in 2017, our 2nd largest supplier of agricultural imports. Leading categories include: snack foods ($4.2 billion), red meats, fr/ch/fr ($2.3 billion), other vegetable oils ($2.0 billion), processed fruit & vegetables ($1.5 billion), and fresh vegetables ($1.4 billion).

The biggest categories of Canadian imports into the USA are fuels (oil), vehicles, agricultural products (wheat), machinery, and plastics. These are the investment areas that stand to lose if NAFTA goes away or is drastically redrawn.

Other Options for Canada

An item in the Globe and Mail caught our eye. It says a Chinese group is buying up bankrupt oil sands operations in Alberta. Canada is rich in raw materials and it can sell its agricultural and processed food products anywhere on earth. Your Canadian investments might take a hit due to NAFTA changes, but one can expect any and all affected industries to find new markets and  start to recover.

Do Your Canadian Investments Depend on NAFTA? PPT


Are Marijuana Companies Good Investments?

Tilray is the second largest publicly traded marijuana company. Their sales have doubled in the last year and the stock recently went up 17%. With more and more states legalizing marijuana for medical or even recreational purposes, are marijuana companies good investments? Business Insider writes that weed stocks are surging.

Shares of Tilray – the second-largest publicly traded marijuana stock – were up more than 17% Wednesday after the Canadian company posted quarterly sales nearly double a year ago.

But, is it the growth of sales that drives the stock price up, or something else?

Tilray is now valued at $4.9 billion, despite its losses, and could keep growing thanks to investments from major players in other sectors, especially alcoholic beverages. Constellation Brands – which makes Corona and Modelo, among other popular drinks – catalyzed a huge rally in Canopy Growth’s stock through the announcement of two recent investments.

“We expect more alcoholic beverage companies to announce deals with Canadian LPs over the course of the year, and view Tilray as an attractive partner for an alcohol company looking for exposure to cannabis,” Vivien Azer, an analyst at Cowen, said in a note to clients on Wednesday.

Shares of Tilray are up 164% since the company’s IPO in July.

It would appear that companies in the alcoholic beverage business do not want to be left behind if the marijuana business really takes off. Or perhaps they are just hedging their bets. Either way, it appears that at least part of the run in price of Tilray is from investment by the folks who also sell alcohol.

Long Term Value of Marijuana Stocks

What is the intrinsic value of a marijuana stock? The value of a marijuana stock will go up as its sales increase. And, sales will go up as more and more jurisdictions legalize marijuana. Where is pot legal today and where might it be legal tomorrow?

Recreational Pot in Canada

Forbes reports that marijuana is now legal in Canada.

This fall, Canada is set to become the 2nd nation in the world to allow legal consumption of recreational marijuana. The Cannabis Act, passed by the Canadian Senate on June 21, controls and regulates the growth, distribution and sale of recreational marijuana in Canada. Prime Minister Justin Trudeau expects everything to be in place for consumption to begin on October 17.

The population of Canada is 36 million people, just a couple of million fewer than live in California.

Recreational Pot in the USA

Business Insider has a map showing where marijuana is legal for medical use and where marijuana is legal for recreational use in the USA.

Nine states and Washington, DC, have legalized marijuana for recreational use – no doctor’s letter required – for adults over the age of 21.

Legal marijuana sales exploded to $9.7 billion in North America in 2017, according to a report from Arcview Market Research and BDS Analytics. That represents a 33% increase over 2016, shattering previous expectations about how quickly the marijuana industry could grow in the face of federal prohibition.

The report also predicted the legal marijuana market will reach $24.5 billion in sales – a 28% annual compound growth rate – by 2021, as more state-legal markets come online.

It would appear that recreational marijuana is a growth industry, which explains why the folks who sell alcohol are buying a few shares of the competition just in case.
States where pot is legal for recreational use:

  • Alaska
  • California
  • Colorado
  • Maine
  • Massachusetts
  • Nevada
  • Oregon
  • Vermont
  • Washington
  • District of Colombia

Federal Law versus State Law

Federal law prohibits marijuana use for recreational purposes. But, in states where pot is legal, local law enforcement agencies do not arrest anyone and Federal Authorities have followed state procedures in these jurisdictions. As such it would appear that more and more states will legalize marijuana and increase the available market for marijuana companies.

In the end, the marijuana companies that will be good investments will be those which manage their cost of production, compete well on quality and price, and market most effectively. Right now, it is not clear who that will be!

Are Marijuana Companies Good Investments? PPT

Why Are Health Care Companies Good Investments Today?

As the bull market continues to age, many investors are re-balancing their investment portfolios. Some are buying bonds as a way to invest without losing any money. These folks are willing to accept safety in return for giving up the opportunity for more profits if the market keeps going up. Others are staying in the market but looking for safe investment niches. One such relatively safe investment niche is health care. Why are health care companies good investments today?

Signs That a Correction Is Getting Closer

Stock traders watch the market for technical signals and long term investors look at stock fundamentals. But, sometimes the proof is right in front of us in our everyday lives.

An old friend of mine, a native of the country of Panama, tells a story. His father was a farmer and an observer of nature as well as human nature. He said that a person did not have to read the business pages to know if there was a recession on the way. All that was necessary was to look at the mango trees in the park across from the church on a Sunday morning.

When times are good, no one bothers to climb the trees in the park to pick the mango fruit. But, when there is less work and less money in everyone’s pockets, the mango trees are picked bare because people need to eat.

You do not have to live in Panama and look at mango trees. When another mall closes in your town it is not necessarily because of bad management. People are simply buying less. And, the result is that weaker businesses fail, followed by the next weaker, and their employees start looking for work, and taking jobs that pay less.

What Will People Still Buy When Times Are Difficult?

Health care companies are good investments today and always because people need their products and will buy them even when they cannot afford an IPod or need to cancel their Netflix subscription. Market Watch writes that the market is due for a hard landing and suggests health care companies as a safer investment option today.

Over the past 10 years it has not paid to be cautious. Low interest rates drove prices of almost all assets higher. Pricier assets made people feel wealthier and thus magically created economic growth. Low interest rates also pushed people into riskier assets, thus creating a mismatch between the assets people hold and their true risk affordability and appetite.

What is clear is that since interest rates are low and global economies are highly leveraged, central banks and governments will not have as much power to help.

This is one reason why my firm’s portfolio holds a lot of healthcare stocks. Healthcare companies have great balance sheets; their business is not cyclical (the demand for its products doesn’t fluctuate with the whims of the global economy); and there is a huge tailwind behind their backs in the form of the aging global population. Moreover, many of these stocks trade at highly attractive valuations.

Health care companies are not all the same. United Health Care is a health insurance company. Pfizer is a big pharmaceutical company that sells lots of medications that people need. Medtronic makes cardiac pacemakers and other equipment needed for health care. Johnson & Johnson sells everything from Band-Aids to advanced prescription medications. Johnson & Johnson was also mentioned in our article about investing without losing money. They and Microsoft are the only two US companies with AAA rated corporate bonds.

Health care companies are good investments today because they are not overpriced and have huge margins of safety with strong brand name products that will still sell when the economy weakens and the stock market corrects.

Why Are Health Care Companies Good Investments Today? PPT

Will Trump’s Problems Cause You to Lose Money?

No matter what is going on in the world of politics, the business of investing is to make money. Smart investors are apolitical. Their only concerns with politics have to do with the effects of laws and regulations on investing profits. We just wrote about whether or not the mid-term elections could cause you to lose money. But, now the question comes into closer focus with the legal troubles of those close to Donald Trump. What is going on and should you be concerned? In short, will Trump’s problems cause you to lose money?

Fraud Convictions for Manafort and Guilty Plea by Cohen

Just yesterday Trump’s former campaign manager was convicted of several counts of fraud and his former lawyer pled guilty to other crimes, while also implicating the President of the United States in a cover-up. The New York Times writes about all the President’s crooks.

On Tuesday afternoon, the American public was treated to an astonishing split-screen moment involving two of those people, as Mr. Trump’s former campaign chief was convicted by a federal jury in Virginia of multiple crimes carrying years in prison at the same time that his longtime personal lawyer pleaded guilty in federal court in New York to his own lengthy trail of criminality, and confessed that he had committed at least some of the crimes “at the direction of” Mr. Trump himself.

Let that sink in: Mr. Trump’s own lawyer has now accused him, under oath, of committing a felony.

Only a complete fantasist – that is, only President Trump and his cult – could continue to claim that this investigation of foreign subversion of an American election, which has already yielded dozens of other indictments and several guilty pleas, is a “hoax” or “scam” or “rigged witch hunt.”

To say the least, this could be bad news for Trump. But, back to the point, will Trump’s problems cause you to lose money?

For Now, Wall Street Does Not Care!

CNN Money reiterates what we said in our article about the mid-term elections. Smart investors are only interested in politics to the degree that governmental changes directly affect business. CNN writes about why Wall Street is unfazed by the Trump-related turmoil.

“The market has known there’s a political circus in DC for the entire time of the Trump presidency,” said Nicholas Colas, co-founder of DataTrek Research.
“Investors don’t really care who the president is. They care about earnings and interest rates,” said Colas.

Earnings are booming, thanks to an economy that grew at a four-year high of 4.1% last quarter. Unemployment dropped to 3.9% during July. This week’s turmoil does little to change that.

Is there any scenario in which an investor should be worried? We noted in our article about the mid-term elections that uncertainty tends to drive stock prices down prior to elections, but markets tend to recover nicely once the political dust has settled. Is there any reason to be more concerned this time around?

The “I” Word and Increased Uncertainty

In our opinion, the main issues facing investors are a possible full-fledged trade war and a nine year bull market that will eventually correct strongly. Investors deal with these issues every day. Trump’s problems enter the mix because of his combative nature. Rather than just letting things run their course, the current President may well decide to pardon Manafort and attempt stop the Mueller investigation into Russian meddling in the US electoral process. If there is a Democratic majority in the House of Representatives next year, and especially if there is a Democratic majority in the US Senate, the specter arises of impeachment proceedings.

So, would impeachment of a sitting US President hurt your investments? Remember that Bill Clinton was impeached by a Republican House of Representatives in 1998 and in 1999 the Democratic controlled US Senate acquitted him of the charges. During the Clinton years, the stock market had one of its best 8 year runs ever!

If things go really badly for the sitting US President, the issue for investors will be uncertainty and not the specifics of what is going on in the world of politics and legal proceedings. Will Trump’s problems cause you to lose money? The answer is that if you lose money in your investments, it will probably not be the President’s fault!

Will Trump’s Problems Cause You to Lose Money? PPT

Could the Mid-Term Elections Cause You to Lose Money?

In just a couple of months the country will vote in the mid-term elections. This is the election that falls between presidential elections. On the Federal level, all seats in the US House of Representatives are up for election every two years and a third of US senate seats as well. There is a tendency for the party that did well in the presidential election to lose seats in this “off year” election. Because of the potential for a significant shift in political power on the Federal level, investors are wise to pay attention. Could the mid-term elections cause you to lose money? Here are some thoughts on the subject.

The Effect of Mid-Term Elections on Stocks

Zacks Investment Management has some useful things to say about how mid-term elections affect stocks.

Because midterm election years can mean a shift in the balance of power in Congress, it also means that there is an increased risk of one party enacting new laws and/or policies in the lead-up or once the power dynamic is set. Markets, in our view, do not like policy uncertainty.

This thought is supported by the figures they quote.

Going back to 1962, the average correction during a midterm election year was an eyebrow raising -19%.

AND

Since 1962, the average bounce for stocks following the midterm correction was a sturdy +31%.

Their approach to politics is that they are only interested to the extent that what the government does has an effect on investing by way of “property rights, corporate profits, and economic growth.”

If you believe these folks, you could lose money going into the mid-term election and win even more back afterwards.

Many Factors Affect Your Investments

How well your investments do depends on how well you pick them. We have repeatedly mentioned the concept of intrinsic value to use as a guide for long term investing in stocks, although the concept applies to any investment. In order to accurately determine intrinsic value of an investment, you need to be able to predict the future. That works better with a stable economy, no extreme changes in the laws affecting investments, and no major crisis that throws everything into an uproar. Volatility in any factor makes investors nervous and tends to drive down stock prices. This is why the market tends to sag in the months coming up to the mid-term elections.

How about This Year?

Could the mid-term elections cause you to lose money this year more so than in other mid-term election years? The factors that concern us all revolve around the investigation into Russian meddling in the 2016 presidential election. And, could things get worse instead of better after the election?

The main cause of low stock prices going into the mid-terms is uncertainty. And, when the election is past, the uncertainty goes away. Thus, stock prices fall and then they rise. But, what happens this year if the Democrats reclaim both the US House of Representatives and the US Senate? And, what happens if the investigation into Russian meddling in US elections finally implicates the sitting US President? Clinton was impeached in the 1990s when the Republicans controlled the House of Representatives but the Democrats controlled the US Senate and Clinton remained in office. Nixon was likely be impeached by the House and convicted by the US Senate and agreed to resign.

Our take on Donald Trump is that he would never give up even if there were damming evidence of his complicity in Russian meddling or in orchestrating a cover up. The worst near-term case scenario for investors is that the Democrats take back the House and Senate. Then the House votes to impeach Donald Trump. The national anguish from such a drama played out on the talk show and news, repeated presidential tweets, and a high stakes game of chicken between the President and Congress would continue the uncertainty that investors hate and drive stocks down even further. Pay attention as this drama plays out and maybe consider looking at our article about how to invest without losing any money. For investors who like certainty, the potential upside to the worst case scenario is that Trump leaves office, the Tweet storms cease, we have a “ho hum” president in Pence, and four years of relative tranquility in Washington allow investors to plan, invest, and make profits.

Could the Mid-Term Elections Cause You to Lose Money? PPT

What Is the Most Profitable Way to Invest Your Money?

At any given moment in time, some investments are making money and others are losing money. Too many investors buy in a bull market, only to see their investments decline as the bears take over. Successful investors are either very good at market timing, or dedicated to long term value investing based on intrinsic investment value. What is the most profitable way to invest your money?

How to Pick Winners

There are investments that we wish we had made. Microsoft today is a huge and stable company with a nice dividend. Anyone who bought it when the company went public thirty years ago saw their initial investment grow roughly a thousand fold. Finding the next Microsoft could be a profitable way to invest your money. But, how can you do that?

Several years ago we wrote about how to pick a winner.

The good news is, there is no secret to finding and selecting winning stocks; the bad news is that you need to invest a little effort. Whether you locate a prospect through observation, watching the news, or using a stock screener, you’ve only taken the first step. After this you need to do some research: fundamental analysis of the company, technical analysis of its earnings, and even candlestick chart analysis of its stock.

Picking winning investments does not happen by chance. If you want to find the most profitable way to invest your money, you need to actively search for investment opportunities, routinely dedicate time to the project, and pay attention to your investments once they have been added to your portfolio.

When to Buy and When to Sell

When the stock market is going up, everyone wants to buy and share in the profits. And, when the market is going down, everyone wants to get out and avoid more losses. Successful long term investors don’t do it this way. They only invest in stocks when they understand the business plan and how that business plan will generate profits into the distant future.

When a falling market drives all stocks down, they buy stocks that are now under priced. When a rising market drives stocks up beyond their fundamental value, they limit their investments or even sell and take profits.

Margin of Safety

Successful investors keep track of the intrinsic value and margin of safety of their investments.

Successful long term investors look for stocks that are likely to provide strong cash flow, return on investment, and a degree of security over the years. The security in owning a good stock comes from its margin of safety.

Cash in the bank, limited debt, and unencumbered assets like property and factories are all part of the margin of safety of a stock. When Steve Jobs came back to Apple he built up a huge cash reserve so that he would never again have to go begging to Bill Gates at Microsoft for a loan. Apple has great products and an excellent business plan. And, they have an absolutely huge margin of safety with a quarter of a billion dollars in the bank.

What Is the Most Profitable Way to Invest Your Money? PPT

What Happens to Your Investments When the Trade War Is Resolved?

The threat of an ever-expanding trade war has been dragging down many investments in stocks. There are lots of doomsday scenarios out there predicting not only the collapse of the stock market but of the global economy. But, nobody wants a total disaster. Rather the Americans, Chinese, Europeans, and others all want the best deal they can get, short of creating a situation in which everyone loses. So, what happens to your investments when the trade war is resolved?

Economic Growth with Fewer Trade Worries

CNBC reports that Goldman Sachs sees a possible stock market surge. In response to questions from investors, Goldman looked at where to invest if trade tensions fall and the economy continues to perform well.

The looked at what would happen if trade tensions fade, the Federal Reserve stops raising rates after two or three hikes and economic growth continues to rise. Under such a scenario, Goldman’s estimate for S&P 500 2019 earnings per share would rise by 3 percent, to $175, and a lower-than-expected Treasury yield would enable a market price to earnings multiple of 18 times. This would lead to a year-end price target for the S&P 500 of 3,150, 11 percent higher than Friday’s close.

Where would the growth, or recovery, occur in the event trade tensions ease off? We wrote recently about companies hurt or at least threatened by trade worries. Harley Davidson moving production out of the USA in response to a trade war was one. The other was Boeing outsourcing production to retain foreign business and remain profitable. Boeing is obviously the bigger issue as their exports rival the dollar value of all US agricultural exports. If the threat of a trade war eases, Boeing will be a likely beneficiary. And, then there are US food exporters like Tyson.

Tyson exports beef and poultry and has been hurt by the evolving trade war. Seeking Alpha sees Tyson as underpriced in relation to its long term (intrinsic stock) value.

This morning, Quad 7 Capital’s BAD BEAT Investing discussed Tyson Foods (TSN) as a buy strong buy under $60. Here is the deal. With fears over inflation, rising feed and labor costs, and international tariffs, investors have been jumping ship. We believe at $59 a share, the Street is mispricing the stock. In this column, we will describe what we are seeing in this leading world supplier of proteins to industry and retail supermarkets. Currently, we have seen an extended selloff and we believe it is time to get long.

What happens to your investments in Tyson when the trade war is resolved? Its exports will surge, its profits will increase, and its stock price will likely go up. This may be the ideal sort of investment to make if you believe that cooler heads will eventually prevail and an all-out trade war will be avoided.

If you have been invested in US exporters who have been hurt by the threat of an all-out trade war and you believe that the trade war will fizzle instead of flare up, consider staying with those investments as they may well recover very nicely.

What Happens to Your Investments When the Trade War Is Resolved? PPT

Could Your Investments Lose 30% of Their Value Next Year?

Earnings have been driving growth in the stock market. A trade war is developing and we are entering the 9th year of an economic expansion. CNBC writes that 20% earnings growth is not sustainable and predicts that stocks could plummet 20% to 30% next year.

“You could be looking at the first 20 percent-plus decline in the S&P since the financial crisis,” the firm’s chief U.S. strategist said Tuesday on CNBC’s “Futures Now.”
His worst-case scenario is a 30 percent plunge next year.

“Our primary list of concerns is on the earnings front,” Clissold said. “Earnings growth north of 20 percent isn’t sustainable, especially when you’re nine years into an economic expansion.”

Clissold, a secular bull, isn’t calling for a major, drawn-out recession. Nevertheless, he said he’s on bear market watch due to warning signs indicating a tired bull market.

So, could your investments lose 30% next year due to a tired bull market, trade war, and wavering investor sentiment? What kinds of investments are at risk? And what are safe investments to hold today?

Safe versus Risky Investments

Any stock that is still going up in price based on investor optimism needs to also have strong intrinsic value or it will end up causing a 30% loss or worse. Last spring we asked what can you invest in and not get hurt by a trade war.

Of late we have written about switching investment focus from growth to value as we have been ruminating about the possibility of a stock market crash, economic recession, and collapse of the real estate market, all caused by a trade war. Materials stocks have been hurt by Trump’s announcement of tariffs on steel and aluminum. The bull market has been historic and is likely to cool off if we are lucky and collapse if we are not. How can you invest and not get hurt by a trade war?

Companies that get their raw materials locally and do business primarily in the USA are largely immune from the effects of a trade war. Biotech is also largely protected because when someone comes up with a cure for diabetes or cancer it will be a money maker no matter what else is happening.

Companies with lots of business in China, Europe, Mexico, and Canada are at risk as are companies that get their raw materials from any of these regions. Boeing stands to lose badly if foreign buyers move in bulk to purchase jets from Airbus. Apple gets nearly two thirds of its revenue from offshore and 30% from China. Likewise, Ford has a large offshore presence that could be hurt in a trade war. A larger issue for a company like Apple is that it manufactures many of its parts offshore making them subject to tariffs.

Could your investments lose 30% of their value next year? If you are not sure about how to deal with the possibility of a market correction, consider how to invest without losing money while the economy, trade issues, and the markets are sorting themselves out. A well balanced investment portfolio commonly includes high grade bonds to protect against exactly this kind of risk.

Could Your Investments Lose 30% of Their Value Next Year? PPT


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