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Tracking How Far They Fell: November Industrial And Financial Edition

Dec. 04, 2018 5:27 AM ETBA, CAT, CMI, DE, EMR, ETN, GD, JNJ, MMM, NOC, ROK, ROP, SPLV, SPY, UTX, VPU, STT4 Comments

Summary

  • In January, I began publishing articles that examined how far several large-cap industrial stocks might fall during a bear market, and I suggested some alternative investments.
  • This article will examine how those industrial and financial sector stocks are tracking against the more defensive alternative investment ideas I presented.
  • 11 out of 11 industrial stocks I was bearish about in January and February underperformed my suggested alternatives through the month of November.
  • 3 out of 4 financial stocks I was bearish about this summer underperformed the suggested alternatives.
  • 2 out of 2 of the stocks I've purchased after they fell far enough, Cummins and State Street, are positive and outperforming the S&P 500 through the end of November.

industrial site at night

Source: Pixabay

Introduction

In mid-January, I began writing a series of articles that examined how far some popular large-cap industrial stocks might fall if we were to have a downturn within the next three years. I continued writing about stocks in the industrial sector through the month of February, eventually covering a total of 11 popular large-cap industrial stocks: Caterpillar (CAT), Boeing (BA), Cummins (CMI), Deere (DE), General Dynamics (GD), Northrop Grumman (NOC), Eaton (ETN), Emerson Electric (EMR), United Technologies (UTX), 3M (MMM), and Rockwell Automation (ROK).

While all the articles were generally bearish in nature and meant to be a warning to current investors that even the stocks of good companies could fall quite far during a bear market, I didn't stop there. In each article, I suggested alternative investment ideas for the stocks in question. With the exception of 3M, whose suggested alternative investment was Johnson & Johnson (JNJ), those alternative investments either took the form of the Invesco S&P 500 Low-Volatility ETF (SPLV), the Vanguard Utilities ETF (VPU), or a split between the two of them.

This article will examine how those stocks and alternatives are performing so far, and I'll also share some of my observations about the market, as well as some general takeaways or investing lessons we might learn from tracking these results.

The basic strategy I've been proposing in this series is that when the risk/reward - even for good stocks - becomes tilted too far toward the risk end of the spectrum, and the stocks are overvalued once we consider the inclusion of a bear market within the next three years, that investors should rotate out of these stocks and into more defensive positions. The ETFs that I have suggested were chosen because I thought that if the market kept rising, the ETFs would likely capture some of the upside

This article was written by

Cory Cramer profile picture
22.3K Followers

My analysis focuses on the cyclical nature of individual companies and of markets in general. I've developed a unique approach to estimating the fair value of cyclical stocks, and that approach allows me to more accurately buy near the bottom of the cycle.

My academic background is in political science and I hold a Bachelor's Degree and a Master's Degree in political theory from Iowa State University. I was awarded a Graduate Research Excellence Award in 2015 for my research on conservatism.

Analyst’s Disclosure: I am/we are long STT, CMI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (4)

gnwilliams profile picture
Really like the connected lessons and hope you keep it up.
Cory Cramer profile picture
Thanks, gnwilliams. It's nice to have some encouragement. It might be a few days until I get the service sector article out since I'm traveling.
RoseNose profile picture
Thank you @Cory Cramer !
Long CMI and good to know you think it still has some upside. I added some shares in the last down dip, I like holding on with its nice current yield of 3% + and dividend raises.
I also like LMT and think it is doing well. and close to 3% yield and will be next year. Not cheap, yet still not expensive anymore.
Great evaluation and happy investing :)) Rose
Cory Cramer profile picture
Thanks, Rose. I was driving across Arizona and New Mexico today, so I was out of the loop and then I heard on the radio the Dow was down nearly 800 points. I stop paying attention for a few hours and the whole market falls apart! Probably good I'm not watching...
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