Coca-Cola is Overvalued – Thanks For The Tip, Buddy!
I was reading an article recently of someone making the case that Coca-Cola is overvalued right now. As I read, I was just shaking my head thinking this author has no idea what anything is valued at right now. Honestly, I suspect nearly everything is overvalued right now because we have no clarity. But if you take a long-term view then you might be able to find a few value plays. Coca-Cola was one of them at $36 in late-March.
Identify quality stocks that will likely make it through tough times but can also excel during good times too. Buy them, hold them forever, and buy more when they dip. What else can you do other than raise cash and wait some clarity and real-value? If you have junk in your portfolio then use some market rally’s to clean them out.
Risky Business
A colleague told me recently that he’s investing/trading (couldn’t understand his approach) in the cruise liner industry. Retail, cruise companies, airlines, restaurants, hotels, and other consumer dependent industries are not the place to be right now … even for a quick trade. It’s just too dangerous and I suspect that many of those companies might not make it once the dust settles.
CNBC Shows
A quick look at the titles of some CNBC shows tells you all you need to know about their advice:
- Fast Money
- Mad Money
- Power Lunch
- Options Action
- Trading Nation
- Half-Time Report
- Closing Bell
If you are a long-term investor like me then these shows are to be seen as entertainment only. They are meant to confuse and provide a wide-variety of opinions that exist on Wall Street. They will not help you become a better long-term investor. The best value from these shows is listening to CEO’s talk about some of the companies you own.
Oil Got Their Butt Kicked Today
Oil futures (expiring tomorrow) crashed to -$40 per barrel (that’s right, negative) today on the May futures contract (4/20). Several things immediately crossed my mind:
- Capital starving and debt-riddled companies of all sizes are doomed if this doesn’t turn around immediately
- Focus on oil majors (i.e. Exxon, Chevron, Royal Dutch Shell) because they will be the few that have a chance of surviving and thriving
- There is some long-term money to be made
- The markets (stock, oil, currency, etc…) have no clarity or direction and anybody that says differently is full of crap.
Futures contracts are tied to a specific delivery date and this one is May and the contract expires tomorrow. It sounds scary to hear that May futures actually went to negative territory. It just shows that we have no demand between now and then.
Seriously, someone is paying -$40 per barrel to come get their oil because they have no place to store it. That sounds absolutely crazy that they are paying people to come get their oil and take it off their hands. We already know that there is no demands so I feel that price is legit.
You have to go back decades (1980’s) to get contracts even close to being priced like what we saw today. Oil prices fluctuate and this is the best time to buy if you want energy in your portfolio. I’ve lost a lot of money in smaller, junky energy companies and I will never touch them again … NEVER! They are boom and bust and get destroyed when oil prices get smashed (like now). If you consider yourself a long-term investor then you have to focus on the majors.
Good Quote
How’s this from widely followed investor Howard Marks, co-founder of Oaktree Capital, when he was on CNBC this morning.
“We’re only down 15% from the all-time high of Feb. 19 but it seems to me the world is more than 15% screwed up.”
Talk about nailing it with a simple, clear comment about the huge rally from the lows hit in late-March. I’m literally sitting in all cash with my 401(k) after the rally. My taxable stock portfolio is still fully invested with dividend stocks though. I’m grateful none of my stocks have talked (yet) about cutting or suspending dividends.
I read something else today that said “The economy is crashing because people are only buying what they need.” That kinda puts another perspective on things. Is it possible that will reevaluate their discretionary spending when this virus-impacted economy settles?
Honestly, I think that people won’t eventually find their way back to Disneyland, expensive travel, or buy overpriced cars.
Thanks for reading!
Mr. TLR