I have not done well in the markets for the last six weeks. Here is why:
- Overweight in Life Insurers. Yes, they are in better shape than the banks, but that only means they got hit later, not that they would not get hit.
- Too much economic sensitivity. I felt that global demand would hold up better than US demand, but that only means they got hit later, not that they would not get hit.
- I suspect that hedge funds have been blowing out my positions.
I’ve been talking about stock survivability lately. What does that mean?
- Low levels of short-term debt. Few major debt maturities coming in the next three years.
- Low levels of total debt relative to tangible capital.
- Still earning money and producing free cash flow, even in a tough environment.
- If a company is cyclical, it has slack assets, particularly cash equivalents. High current and quick ratios.
- If not a financial, trading at a historically low price to sales ratio. If a financial, trading at a historically low price to book ratio.
- Good accounting quality and corporate governance.
- A leader in their industry. It would be difficult to lose them.
With a little work on my side, I came up with 80+ names to consider, that I think fit the above criteria, mainly:
AAPL ABX ADBE ADP AFG AHL ALL APA AXS BBOX BHE BHI BHP BWA CAS CB CF CHV CINF CLF CMI CRH CSL CTSH EBAY ENH FCX FDS FSR GD GPC GWW HANS HAR HCC HMN HON IBM ITW LNT LOW MHP MMM MRO MSFT MTW NKE NOC NOV NUE NVDA ODP OKE ORCL OXY PC PEP PL PRE PTP RE RHHBY RIO ROC ROCK RTN SHLM SIGI SYK T TEX TMO TRV TYC UTR VCLK WAG WBC WDC WRB Y ZMH
This is a portfolio that I think will do well even in tough environments. I will be buying some of them on Monday, and will let you know what I did.