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There may be a lot of negativity in the market Monday with prices lower across the board, but we are staying the course for the Charitable Trust and opportunistically looking for stocks to buy in select areas.
If you take a step back, the uncertainties facing the market right are not different from what the economy has overcome in the past. We’ve gone through stretches like this before, and the difficulty of predicting when it will happen is a big reason why we always maintain a well-balanced, diversified portfolio for the Charitable Trust and keep some cash on the sidelines.
A selloff like this can be rough, and it never feels good as it is happening. The constant selling tests our patience. But if you take a more medium-term view of things, what you will find is that there are plenty of stocks of great companies that have been wrongly punished and brought down by the sell everything mentality.
In our Investing Club note this morning, we suggested members be picky and selective with their buys. Below are some groups and ideas that are on holiday shopping list.
Healthcare is a group we continue to emphasize. They are defensive and can grow earnings even in an economic slowdown. Also, drug stocks are winners from the potential blocking of the Build Back Better plan because one of the provisions would have allowed the government to negotiate directly with pharmaceutical companies on the price of certain drugs.
- In the portfolio, we like Abbvie (ABBV) for its huge dividend yield and think the market has underappreciated its ability to replace Humira sales, but it is a bit harder to chase this one after the significant outperformance in the past month.
- We like Eli Lilly (LLY) at the current price more. The stock has fallen about 6% from its post-Investor Meeting high, and we continue to favor this pharma name for its volume-driven growth, blockbuster-rich pipeline, and continual operating margin expansion.
- Or how about a company with a breakup catalyst like Bausch Health (BHC)? We said earlier it looks very attractive on a sum of the parts basis.
We still see value in the banks because they are cheap on earnings, have solid dividends, aggressive share repurchase programs, and tend to outperform when the Fed raises rates.
- Our favorites are Wells Fargo (WFC) and Morgan Stanley (MS). Wells Fargo is more of a restructuring story because of its cost-cutting initiatives and the asset cap, but it’s also a great way to play higher interest rates. Morgan Stanley is not interest-rate sensitive. Instead, Morgan Stanley’s business model emphasizes fee-based and recurring revenue streams. Investors are willing to pay more for fee-based and recurring revenue streams because they are predictable and easy to forecast. As fee-based and recurring revenue streams become the majority of Morgan Stanley’s total revenues, we think the market will reward MS by applying a higher price-to-earnings multiple …….