March9,2020 BARRON’S 13
STREETWISE
I refuse to letstock market anxiety dominate
my day—I set aside time to panic over bonds,
too. That’s diversification 101.
What I Did During
The Market Meltdown
I
refuse to let stock market
anxiety dominate my day—
I set aside time to panic over
bonds, too. That’s diversifica-
tion 101. Trading was so wild
this past week that I spent
evenings at home focused on
quiet pursuits, like stress-eating the
emergency food we’ve stockpiled. It’ll
be fine, but I need to minivan it down
to Costco for another forklift load of
Cheez-Its before my wife finds out.
Krogerstock (ticker: KR), recom-
mended here two weeks ago, jumped
8% on Thursday, while the S&P 500
index fell 3%. On an earnings call, the
company said shoppers have in-
creased spending in recent days on
water, soap, hand sanitizer, and soup.
BMO Capital Markets declared Kroger
a “Great Covid-19 Stock.” I guess on
Wall Street, that’s the new Buy rating.
Just 18 S&P 500 stocks have gained
since the market turned balky in mid-
February. Kroger is a top performer,
along withCampbell Soup(CPB) and
Clorox(CLX). Others includeRegen-
eron Pharmaceuticals(REGN) and
Gilead Sciences(GILD), which are
working on coronavirus treatments;
MarketAxess Holdings(MKTX),
which profits from frantic trading;
andNewmont(NEM), a gold miner.
The metal has turned almost as popu-
lar as cream of mushroom and clean-
ing wipes.
Nothing against these companies,
but they’re a depressing set of market
leaders. I might as well short sunshine
and buy the April calls on wet socks.
For safety, there’s always the warm
embrace of U.S. Treasuries. Yields
there have gotten so low that even the
1% would be happy with 1%.
As a teenager, I had a successful
turn as a summer camp dishwasher
that I parlayed into promotions to pots
and pans, then cook’s helper. I men-
tion it because today a nervous retiree
who commits $3 million in lifetime
savings to 10-year T-notes collects a
yearly yield of $23,010, as of Friday
morning. I looked up that figure on
the Bureau of Labor Statistics tables,
and nestled between shampooer and
ticket-taker was my old post of dish-
washer, paying $23,190. It’s honorable
work, of course, and $3 million still
makes a person well-to-do. But safety
sure has gotten expensive.
What if the economy takes a hit,
but our worst fears don’t play out? For
its base forecast, Goldman Sachs as-
sumes the Covid-19 outbreak will be
widespread but short-lived. It sees
gross domestic product bottoming at
zero growth in the second quarter
before rebounding, and earnings stall-
ing, while falling interest rates push
the S&P 500 to just over 19 times
earnings by year’s end, or 3400.
That’s 14% above recent levels.
Goldman’s bear case has a reces-
sion sapping 13% from earnings and
the S&P 500 falling 17%, based on the
experience of 11 recessions since
1947—unhappy, butnot devastating to
long-term investors.
I left my base case in my briefcase,
and my bear case involves actual bears.
But part of safety is preparing for the
possibility that better days arrive, and
some havens are left looking hazard-
ously expensive. That means mixing in
some well-managed companies that
have sold off on unwanted exposure.
As an example, at the beginning of this
year,Walt Disney(DIS) traded at a
40% premium to Campbell, relative to
earnings. Now the premium is gone. I
wouldn’t be surprised if the world’s
most valuable entertainment assets
beat soup over the long run.
UBS took a what’s-priced-in ap-
proach to stock-picking this past week,
looking for companies trading close to
the firm’s downside forecasts, and far
below its upside ones. For example,
Stanley Black & Decker...................
toolmaker, started the year at 18 times
forward earnings forecasts, and has
tumbled to 14 times, with healthy
growth forecasts. That growth could
slow on an economic downturn, or if
conditions worsen at the company’s
plants in China. But UBS reckons
there’s a 6-to-1 ratio of potential upside
to downside from here. For the more
adventurous, it sees an 8-to-1 ratio for
JetBlue Airways(JBLU), recently
trading below six times earnings.
Baird, meanwhile, called on its ana-
lysts for picks with sturdy business
models and balance sheets, and lim-
ited exposure to Asian supply chains.
They identifiedLowe’s(LOW), the
home-improvement chain, which
trades at 16 times earnings, and could
benefit from a plunge in mortgage
rates. They also likeYum! Brands
(YUM), where strength for KFC and
Taco Bell is offsetting weakness at
Pizza Hut. The shares go for 23 times
earnings, and the company is growing
earnings at a double-digit pace.
I have an important addendum to
Baird’s work. KFC has gone nation-
wide with a sandwich of fried chicken
held between two glazed doughnuts.
Intrigued, I headed to a combo KFC/
Taco Bell and took a bite. I tasted top
notes of vending-machine danish and
immediate regret. I ate the chicken and
left the doughnut. My pairing recom-
mendation is a 1988 Bartles & Jaymes.
Fortunately, the meal was saved by a
Doritos-dusted taco. One glazed thumb
down, one orange thumb up.
I
f travel becomes difficult, there
will be more working from home,
whichiswhyZoom Video Com-
munications(ZM) is up 68% this
year. Parents should prepare for the
risks of telecommuting during after-
school hours. A companywide work-
from-home test this past week went
smoothly, but I experienced a local
mishap, and to the top executive I
interviewed by phone on Wednesday
afternoon: my apologies.
The ruckus you heard wasn’t an
Occupy Wall Street protest. My boy, 5,
had stormed my home office hollering
complaints. And by “stormed” I mean
he was wearing a head-to-toeStar Wars
stormtrooper costume 125 days past
Halloween, but that’s beside the point.
I had put the kids in front of Netflix
before our call, because a situation like
this is no time for good parenting. He
made out that his sister, 9, had changed
his Netflix username to something I
shouldn’t print.
It was “idiot face.” Mind you, he’s a
bright boy with a good face.
You no doubt also heard a dog
barking. That’s Ginger 2, who’s almost
1—regular Streetwise readers might
remember her from a pet stock write-
up last summer. There’s a recent pic-
ture on Twitter: @jackhough. She’s a
good dog, but a bit of a background
rabble-rouser, and Lord help her, she
doesn’t understand the first thing
about work-life balance.
Anyhow, I feel like a bit of an idiot
face. New protocols should help.
Locking the door during phone calls,
for starters.B
email: [email protected]
By Jack Hough
Goldman’sbearcasehas
a recession sapping 13%
from earnings and the S&P
500 falling 17%, based on
11 recessions since 1947.
Richard A. Brooks/AFP/Getty Images