Mr. David Alton Clark, the founder of Clark Capital, has managed his own portfolio for the past 25 years successfully navigating the 2000 and 2008 bubbles, so he understands the full cycle the market can take. According to TipRanks, an investing platform that tracks and measures the performance of financial experts, Clark’s investment ideas have seen an average yearly return of 25.3% with a success rate of 70%. It’s not a surprise, then, that Clark has held down the #1 spot on TipRank’s Top 25 Financial Bloggers list for a majority of the past decade.
Highlighting the current volatile markets due to the COVID19 outbreak, Clark advises against making any big bets at this time. Clark states, “Often these types of viral outbreaks are transitory in nature and affect the markets only temporarily. Yet, this one is quite unique causing issues with both demand and supply. I advise against catching falling knifes even with the market down 30%. Nonetheless, I have decided to put a small amount of money to work at the current level based on certain signs a bottom may be forming.”
With this in mind, we asked the top financial blogger if he would share three stock picks he sees as potential buying opportunities. Let’s take a closer look.
OXY is my highly speculative high risk high reward play. OXY has gotten crushed. It’s down nearly 70% in just the last month. The stock has fallen along with oil. The problem with oil is twofold with issues on both the supply and demand side.
First, the economy basically being shut down from the coronavirus outbreak has caused a major demand shock. Second, the Saudi’s spat with the Russians has caused a major supply glut. On top of all this, OXY was placed in a bad position with a recent buy of Anadarko leaving them burdened with a heavy debt load. Moody’s actually just downgraded their debt.
So you must be wondering why in the world I would buy it now when it seems the company is facing the most pessimistic outlook in years and trading at a 17 year low. Well, actually that’s the exact reason why I bought it. It’s a contrarian call.
Starting as position at the point of maximum pessimism is one of the hardest things to do. A contrarian believes that certain crowd behavior among investors can lead to exploitable mispricings in stocks. Widespread pessimism about a stock can drive a price so low that it overstates the company's risks, and understates its prospects for returning to profitability. Selling high and buying low is one of the hardest things to do. It is counter intuitive to human nature. This is why most don’t stand a chance of beating the market. You must buy when they cry and sell when they yell as a contrarian investor. Now, you must have a thesis for the stock to recover and courage in your convictions to stay the course. Nonetheless, fortune favors the bold. The following is my bull thesis regarding OXY.
First, I believe the Saudis will come to an agreement with Russia sooner rather than later. One little peep of a deal with Russia and I see oil skyrocketing higher. In fact, oil was up substantially as of the time of this writing. The Saudis are famous for walking back their threats. Furthermore, they need $75 barrel to pay for all their social programs. So it may only cost them $10 a barrel, yet they need $75 a barrel to sustain their way of life. So they are really in a worse position than the US shale players. I don’t see this lasting very long.
Second, I do not see the current situation with the coronavirus outbreak lasting as long as many are currently predicting. China has gotten it under control in 2 months. I see demand coming back sooner rather than later. Lastly, OXY has cut the dividend and has excellent assets under management. Plus, Warren Buffet and Carl Icahn are large shareholders. They tend to know a good deal when they see it. I feel I am in good company.
As I said before, layer into any position in small increments as more volatility lies ahead. I like to say its “time in” the market not “timing” the market that generates profitable investments and creates long-term wealth. My 12 month price target is $22 providing over 100% upside.
Restaurants have been devastated over the past month falling much more deeply than the markets in general. In fact, WING is down 41% in just the last month. Prior to the COVID19 outbreak WING was flying high with an excellent growth trajectory.
WING is a story of big growth in a niche market that perfectly suits the current environment requiring “pick up to go orders.” WING sells buffalo-style chicken wings and sides. They are already set up for to go orders and extremely efficient at it. I see them picking up market share in the coming months. Further, as soon as the clouds begin to clear I see the stock vaulting back to all-time highs in short order. Today, WING has over 1,350 locations worldwide — including in Mexico, Colombia, Panama, Singapore, Indonesia, Malaysia, United Arab Emirates, the U.K. and the U.S. WING is a franchise business.
Finally, I believe the government will soon come out with some type of stimulus package for the restaurant sector in the coming weeks. They have basically called for all restaurants to shut their dine-in areas. It seems logical that they will do something to help them survive during such trying times. I see WING benefiting from this. I see WING regaining its $100 price within the next 12 months implying 100% upside potential for current levels.
AT&T hasn’t fallen as hard as other stocks. This has been the case in past sell offs as well. AT&T is my income/dividend play for those looking for capital preservation rather than appreciation. The stock basically trades in a range between $30 and $40. The stock has fallen from $40 down to $30 in the recent selloff. With a dividend yield of 6.68% and a forward P/E ratio of 8, I see it as an excellent buying opportunity.
AT&T is transforming from being a primarily widow-and-orphan stock to a dividend growth/total return play. The company is in the sweet spot regarding current conditions. AT&T is preparing to launch their new streaming offering. This is a safe dividend/income play and is ideal for those looking for income combined with capital preservation.
I see a slow and steady rise in the dividend payout and share price overtime. If things go well, and the COVID19 outbreak subsides, we could see the stock climb quickly back to the $40 level over the next 12 months implying 30% upside as well as a hefty 6.8% dividend yield. This selection is the least risky of the three and has attained dividend aristocrat status.
We have entered a time of intensified volatility. Even so, the market has sold off sharply, down 30% in just a few weeks. The fast and furious nature of the selloff has shaken the resolve of many in the investment community. Nevertheless, I don’t believe we deserved the lofty level the market was trading at in the first place. With the S&P 500 trading at the current level of 14 times earnings, I posit we may be reaching a point where we can find a bottom. Remember to always layer in overtime. Furthermore, you must have courage in your convictions and focus on the long-term. Do your best to focus on the long-term signal, and ignore the short-term noise.
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