2020
We always remind ourselves in the middle of these exacerbated tribulation periods to stick to our eight criteria for common stock selection. Secondly, we will look at the economic facts going forward and seek the most future business success for the least amount of money. How can we find the upside that comes after this debacle?
The answer comes from certain economic facts. It is a fact that there are 36% more millennial Americans emerging in the 30-45-year-old age bracket the next 10 years than there were Gen-Xers the last 10 years. This group does most of the household formation, baby making, car buying and home buying. They carry a huge multiplier effect on economic activity.
What has the coronavirus and the Saudi oil stunt done to the fundamentals of economic activity of young families? Start your thoughts with the lowest interest rates on mortgages and car loans in my lifetime. Throw in very cheap gasoline for an extended time period. Leave everyone stuck at home or in apartments for a couple of months. Stop millennials from traveling and create massive pent up demand.
We like the homebuilders like Lennar (LEN). In The Wizard of Oz, Dorothy clicked her heels together and said, “There is no place like home.” Once this entire debacle clears, we like the oil business. For balance sheet reasons, we favor Chevron (CVX). When the virus gets done, we believe we will see a huge rebound in banks like Bank of America (BAC), Wells Fargo (WFC) and credit card powerhouse, American Express (AXP). We see Discovery Inc. (DISCA) providing popular unscripted entertainment via HGTV, Food Network and TLC to millennial men and women viewed any way they want.
As you watch TV in the coming weeks, notice that a big part of the advertisements shown are for automobile insurance. Another fact we can add to our list is we’re adding the most driver licenses in the U.S. in the next five years than we have in decades. Those automobile insurance companies are spending that money on those advertisements to be as smart about the future as the Federal government was when they bought the bank stocks in the middle of a huge one-in-70-years panic. In the middle of this panic selling, exacerbated by the coronavirus, remind yourself that this too will pass. What this means is many of the best opportunities could come from those sectors of the U.S. stock market that require economic optimism and have been punished the most in the current decline by the medicine that’s being applied.
William Smead is the chief investment officer at Smead Capital Management.