Rotate Past the Pandemic Economy (but Don’t Dump Tech Yet)

Hilary Kramer

Hilary Kramer is an investment analyst and portfolio manager with 30 years of experience on Wall Street.

We’ve heard a lot about COVID-19 vaccines in this long and often harrowing year, but now it looks like Pfizer Inc. (NYSE:PFE) has really found a way to shield 90% of the population from the virus.

Wall Street has a reason to celebrate Thanksgiving a little early. I’m cautiously optimistic that we’ll be able to put the pandemic behind us by April and the world will get back to normal roughly a year after the first United States lockdowns started ripping up the socioeconomic fabric of the country while the virus wrecked lives.

Wall Street is looking toward better days ahead. We just have to get there first. And that’s an opportunity for investors to count our blessings and get ahead of the future.

The ‘K-Shaped’ Recovery Inverts

A vaccine on the horizon means the “old” face-to-face economy can truly recover from the virus and get back to work. Earnings will start showing us meaningful year-over-year expansion again.

From a corporate perspective, that’s progress. The numbers will once again point in the right direction. Shareholders will see their cash flow increase.

Even in the gloomiest scenarios, they aren’t going to suffer through another spring like the one that rocked the market in February. We’ve seen what total lockdown does. Executives don’t like it, but they’re prepared for it now.

Companies that survived that season aren’t bleeding cash like that anymore. The Fed has already made enough liquidity available to fill the gap. Survival is no longer a near-term concern.

I’m talking about companies that never recovered. If the economy has moved in a “K” shape since the February crash, these companies are part of the lower leg that dropped and never came back up.

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Restaurants, stores, hotels and casinos never came back. They pivoted their operations to survive, but they’re still a long way from thriving. These are the stocks that can dominate the next six months.

And as the service sector gets back to work, millions of American households can breathe a lot easier. They can pay the bills. That’s good for the companies that loan us all money.

Here, I’m talking about the banks. It’s been a miserable year for big banks. JP Morgan Chase & Co. (NYSE:JPM) is down 18% year-to-date (YTD), still on the edge of bear market territory after this week’s surge.

Bank of America Corp. (NYSE:BAC) has lost 24% over that period, and Wells Fargo & Co. (NYSE:WFC) is down a harrowing 55%. They’re bouncing back now in relief because it looks like their loans are not headed for massive delinquencies after all.

They aren’t thriving yet. The Fed’s zero-rate policy ensures that. But as the economy recovers, their end of the “K” will start to point up.

These are classic value stocks. We buy them on dips and hold on until the market realizes that they were more resilient than most people expected.

I’m looking forward to a new season for value investing. My Value Authority subscribers have hung on for years, waiting for that grand rotation.

Year in and year out, our money in that portfolio has worked at an annualized rate of roughly 12.8% a year. Growth left it in the shadows now and then, but some people appreciate the steady gains and reduced volatility.

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The secret is high yields, reliable cash flow and low intrinsic valuations. We buy quality companies at a low price, book regular dividends and then sell when the stocks reach fair value.

You won’t find Amazon.com Inc. (NASDAQ:AMZN) on that list. But that’s by design.

We’re in names like Citigroup Inc. (NYSE:C) instead. And, we’re up close to 20% there so far.

Old Tech On Hold

But what about Amazon and the upward-facing leg of the “K” economy? Technology doesn’t get sick. Companies like Amazon kept the world running while the brick-and-mortar world was locked down.

I wouldn’t sell the work-from-home stocks. They’ve come as far as they can for the time being, but they aren’t going away. We’re never going back to a world of physical doctor visits and bustling offices.

Telehealth and virtual commuting is the new world. We’re seeing those stocks hold up surprisingly well. I just cashed two 100% wins today in my IPO Edge, where I focus on these disruptive names.

This is the future. Companies like Amazon will remain relevant by acquiring them and their exuberance.

Play both sides of the “K” economy. Both of them together are ready for the future.

We talk about it every on my Millionaire Maker radio show. Now, there’s a podcast as well to keep you focused on opportunities to build real wealth while avoiding obvious threats. (Click here for a list of stations and archived episodes.)

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