Thoughts on the stock market - March 2020

Right now, DJIA has a P/E of 16.8 and forwand P/E of 15.1, whereas S&P 500 is at 20.1 with forward P/E of 15.8.
Source: WSJ market Data

If you ignore interest rates and inflation expectations--both of these influence valuations but depends on your macro call-- the market is not cheap. Long-term P/E is around 15.

Trailing P/E is around 20% (Dow) to 40% (S&P500) higher than average.

Forward P/E is in line with long term average but that assumes a strong V recovery. Consensus forecast is for profits to drop 1.2% in 2020. In 2008, it dropped 25.4% so current forecast is a very mild recession. Covid-19 coronavirus is not going to last more than a few months but these forecasts are still too rosy in my opinion. So I wouldn't rely on forward P/E.

The richly valued (mostly tech or high quality) have not fallen much but the distressed ones have. So if you want to outperform in the long run, I think one’s choice right now is to:

  • Wait for market to fall another, say 30%, and buy high quality companies
  • Buy now those distressed ones that have fallen a lot


You can also do a bit of both but you need to decide on portfolio allocation way ahead of time. It’s very complicated to compare good companies that are slightly undervalued versus distressed cheap ones while you are in the middle of a bear market and prices are fluctuating all over the place. So it’s better to think about your allocation, risk tolerance, portfolio weight, etc, ahead of time- do it nowif you haven’t before.
If you want to deploy capital now, it’s probably best to look at the distressed ones. They fall into one of the following:

  • Directly impacted by covid -19 coronavirus: eg. Airlines, cruiselines, hotels, movie theatres, etc. These are extremely cheap but have high bankrupty risk. You have to analyze politics, govt bailouts, future customer retention, and debt risk.
  • Indirectly impacted by virus: eg. Real estate firms, entertainment companies, retail, etc. These can be safer but you really need to understand the industry dynamics and future customer outcomes. For example, is a portion of a real estate company permanently impaired or not?
  • Oil & Gas: Hard to believe but while the virus pandemic is unfolding, we have a major oil economic war is going on. Production is being ramped up at the same time demand is collapsing, have oil prices and associated companies have fallen off a cliff. This is a very unique opportunity. A lot of companies may go bankrupt but if you can pick the right ones, you will make a killing.
  • Distressed industries with no long-term virus impact: Due to indiscriminate selling, I think, industries that struggled before the stock market crash (with possibly secular decline issues) have fallen drastically. Two industries I’m researching heavily are media and automotive parts. This category is interesting because I don't think the long-term business is impacted by the virus or a recession .


If I get some time, I’ll write up some stocks I’m researching. If you have some suggestions, email me or reply on twitter.

Comments

  1. Singapore Airlines has a well-defined cancellation policy that provides clarity and flexibility for passengers. Understanding the terms and conditions of cancellation is essential when making travel arrangements with the airline.

    ReplyDelete
  2. Nice article, thanks for the information. If you are interested in medical treatment in turkey, I definitely recommend looking calf implants transforming your leg shape.

    ReplyDelete
  3. Global Assignment Help is an assignment help service provider that helps students across the world by writing and delivering plagiarism-free quality assignments on-time. The professional experts of the organization are highly skilled and experienced in their respective fields. They are renowned for enhancing the quality of the assignments by providing accurate and correct information about the concepts and recent developments.
    Many students have gained benefits from the technical guidance provided by the experts of the organization, unlocked their potential by effective time-management, and paved their way to future success. The reasonable pricing and round the clock customer service of the organization, makes them one of the most popular assignment help service providers in the world.

    ReplyDelete
  4. Thank you for sharing this informative blog. In need of assignment aid? Don't fret; your search has reached its conclusion. We're here to furnish top-notch Assignment Help, featuring a team of dedicated experts at your service day and night to help you thrive in your endeavors. They're always on standby for any assignment-related queries. Don't hesitate to contact us.

    ReplyDelete
  5. Whether you require one-time deep cleaning or regular maintenance, Helperji offers flexible solutions to meet your washroom cleaning needs for more details visit - washroom cleaning services

    ReplyDelete
  6. PSA Airlines' clear and fair baggage policies made my travel hassle-free! Their efficient handling and friendly staff ensured a stress-free journey. Highly recommended for a seamless travel experience.

    ReplyDelete
  7. "Thank you for Sharing these kind Information But I forund One of the Best Vena Cava Designs
    "

    ReplyDelete
  8. Thank you for Sharing these kind Information But I Forund One of the Best Website Designing Company in Faridabad

    ReplyDelete
  9. Thank you for Sharing these kind Information But I Forund One of the Best.
    Home

    ReplyDelete
  10. During the consolidation process, data mapping and transformation play a key role. Ensuring that data is accurately mapped and transformed according to the organization's requirements is essential for achieving a cohesive and meaningful data repository. KNOW MORE: Data Consolidation services
    Data Consolidation Tools

    ReplyDelete
  11. Thanks for this informative blog all information on this blog are true and right. you are clear my all doubt. jetblue philadelphia terminal

    ReplyDelete
  12. Many thanks for the efforts you have put into writing this site.

    ReplyDelete
  13. It was a game-changer to find Helperji for bathroom cleaning services near me They stand out for their careful attention to detail and environmentally conscious methods. Never before has my bathroom looked so spotless! Bravo to the Helperji team for their commitment to providing excellent service and professionalism. To anyone looking for dependable and effective bathroom cleaning services in the area, I heartily suggest them. You won't be let down, I promise!

    ReplyDelete
  14. Learn how to craft a compelling persuasive essay with our expert writing help. Our tips and strategies will guide you through the process of persuading your audience effectively.
    Persuasive Essay Writing Help

    ReplyDelete
  15. S5der Cloth Shop: Spearheading urban fashion with global influence. From hoodies to track suits, our collection epitomizes street-smart sophistication, blending international trends to redefine modern streetwear.

    ReplyDelete
  16. "Ovo Clothing Store: Fashion with a conscience. Stylish, sustainable apparel for the eco-minded individual. Elevate your wardrobe with ethically crafted designs that make a statement in both fashion and environmental stewardship."

    ReplyDelete
  17. Chrome Hearts: Embodying rebellious luxury, it offers bold apparel and accessories. Renowned for edgy aesthetics and impeccable craftsmanship, it defines a distinct and daring style statement.

    ReplyDelete

Post a Comment

Popular Posts

Warren Buffett's Evolution and his Three Investment Styles

"The Markets They Are A-Changin'"