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Blue Harbinger Weekly Part 1: Recession Fears, Big Market Rotation

|Includes: Paylocity Holding Corporation (PCTY)
Summary

There's recently been a dramatic, stylized, market rotation, and it has added fuel to the media's obsession with the prospects of a coming recession.

The media is absolutely not acting in your best interest (they know fear sells, and they simply want more advertising dollars).

We share some investment ideas, as well as a little common sense wisdom on the current market environment.

Investors have been bemoaning the extended rally by growth and momentum stocks for years considering value has been meaningfully underperforming (value stocks are still up a lot, just not as much as growth). However, there’s been a significant market style rotation going on in recent weeks whereby the fastest “revenue growers” have sold-off hard. Pundits have also recently been obsessed with the idea of a coming recession, and view the rotation as the beginning of the end (or as chicken little would say, “the sky is falling.”) This week’s Weekly reviews the rotation, identifies attractively priced opportunities, and shares some common sense wisdom on the current market environment.

Review: Last Week’s Blue Harbinger Weekly...

We reviewed the competing views between the US Fed Vs the President on Interest Rates. We noted that low rates punish savers, but high rates punish the US government because it must pay more interest on the money it borrows by selling Treasuries, especially as compared to many other countries which actually have negative interest rates.

This Week: Recession Fears, Big Market Rotation...

For perspective, the following chart shows that Growth stocks (Russell 3000 Growth) have been performing much better than Value stocks (Russell 3000 Value) in recent years.

However, more recently, here is one visualization of the recent powerful stylized market rotation that’s been going on. The following table shows how the top 25 performing stocks this year with strong sales growth (between 20% and 80%, this year and next) have sold-off very hard over the last week, especially versus the S&P 500 (SPY) which was up over the last week. And much of the media punditry is suggesting this rotation is yet another recession warning (in addition to the inverted yield curve we’ve been hearing about so much lately).

(source: Stock Rover)

In reality, absolutely no one knows when the next recession is coming, and investors are far better off simply picking good investments that match up well with their investment goals, instead of trying to time stylized market moves (which in reality is a fool’s errand).

For example, one stock we like (It’s a growth stock) that has sold off hard over the last week is payment/payroll processing company Paylocity (PCTY). We’ve actually owned this one in our Blue Harbinger “Income Via Growth” portfolio for several years, and it has served us very well (it’s up a ton). And we believe Paylocity continues to have more upside from here based on its great business (sales are growing like wildfire because Paylocity’s cloud-based solutions are better and cheaper than stalwart ADP, and they are less expensive, and the business is very sticky—it has a high renewal rate). We also think the recent Paylocity sell-off (thanks to the stylized sector rotation) has created an attractive buying opportunity.

Importantly however, only buy/own stocks that are consistent with your long-term investment objectives (don’t buy 100% Growth Stocks like Paylocity if your goal is to generate dividend income with lower volatility). And if you are looking for high dividend income with lower volatility, here are a few ideas we have written about recently, that you may want to consider:

And in addition, we’ve shared a few more very attractive durable income stocks (that have recently sold-off, and are now trading at attractive lower prices) with our members. We share specific examples and full reports/write-ups in the members-only part 2 version of this weekly report (see link below). We also share an update on all of our recent holdings as well as a few more investment ideas that are specifically attractive “buys” right now.

Important Takeaway:

The bottom line here is that it’s a far better strategy to pick attractive investments that are consistent with your long-term goals, than it is to try to time stylized market moves (trying to time the market truly is a fool’s errand). If you can’t handle the threat of a recession and/or market sell-off, then don’t put all of your nest egg in volatile stocks. Prudently-diversified, goal-oriented, long-term investing has proven to be a winning strategy over and over again throughout history. Don’t let the media punditry’s recession obsession scare you into making dumb mistakes. Know your goals. Stick to your plan. It’s a proven strategy for success.

Blue Harbinger Weekly (Part 2):

Part 2 of this week’s Weekly shares the performance of all of our recent holdings, and our watchlist (The Contenders). We also share a several very attractive “members-only” investment ideas (especially considering their recently discounted prices), and our recent income-generating options trade on a popular big dividend REIT, W.P., Carey (WPC).

For starters, here is a look at all of our recent holdings, including how they’ve performed over the last week:

Click Here to learn more about accessing this week's full Blue Harbinger Weekly.

Disclosure: I am/we are long PCTY, WPC.