Outside The Box: 2 More Watchlist Stocks

Perched in a saddle at 7,160 feet was a wall tent filled with a handful of armed men. They had barricaded the only road from the south that led into their community. The road to the north of town was also heavily guarded.

Their job was to prevent folks from entering their town. Their community — settled in Round Valley — was on lockdown.

Officials of this small community took immediate action as the flu epidemic swept the country. They immediately shut down their roads from visitors, taking no chances with the deadly pandemic.

This was October 1918, and the Spanish Flu was wreaking havoc on the world. The H1N1 virus with avian origin was first identified in the spring of 1918. It’s estimated that roughly 500 million people (one-third of the world’s population) became infected with the virus. One in ten died from it, including about 675,000 in the United States (there were roughly 50 million deaths worldwide).

The 1918 flu was the deadliest pandemic of the 20th century.

Folks in Round Valley were first in the country to quarantine their community. And as the local paper said at the time, “If every community in the country would follow the example of Round valley the Flu epidemic would run itself out in short time.”

It’s worth noting that while surrounding communities became infected with the flu, it never quite reached the quarantined community in Round Valley.

Just over a century later, we’re facing similar circumstances. The coronavirus, or COVID-19, has wreaked havoc on the world, and our everyday lives.

Think about this… when we celebrated the New Year there wasn’t a single case outside of China. In three months, it’s spread to nearly every country in the world, infecting more than 887,000 people, and killing more than 44,000.

Folks are nervous, scared, and bewildered. Most U.S. states have issued a “shelter-in-place” order for folks to remain home. Other states will likely follow suit. These are strange times… but this isn’t the first, nor the last pandemic that we’ll face — and conquer.

Just like we persevered through the Spanish flu, we will get through this one.

It May Get Worse Before It Gets Better

Of course, nobody knows whether we’ve already reached the bottom in the market. Personally, I have a hard time believing that the market is already over the plunge in oil prices, the growing number of cases of COVID-19, and all the economic damage that will come out of the sudden halt of our economy.

Just last night, the President told Americans what to expect over the next couple of weeks. He said it would be “painful.”

I won’t dwell on the human cost. Instead, just consider the economic side.

Millions of businesses have seen sales dry up, but they still have costs that they need to cover: rent, debt payments, salaries, etc. Hotels aren’t going to be able to turn back the clock and make up for folks not staying at their hotels, movie theaters can’t make up for lost Friday and Saturday nights, retailers and restaurants can’t make up for consumers staying at home. Airlines, casinos, salons, gyms… the list goes on.

My point is don’t rush… Don’t feel like you’ve missed the boat on getting in on the exact bottom. Nobody knows when the bottom is, and anybody who tells you otherwise, turn and run the other way.

I’m Looking For Companies That Are Holding Up Well

Now, here’s the good news. Despite that notion, the conditions that make bargains available are certainly materializing. I touched on two of my favorites in this article.

For your consideration, I’ll throw out a couple more names that are holding up relatively well in this tumultuous time. As I write this, Electronic Arts (Nasdaq: EA) is only down 7.7% year-to-date, which is better than the S&P 500’s 18.6% loss. As folks sit at home, many of the gaming companies have seen an increase in active users.

Many NBA teams are playing out the rest of their season on NBA 2K streaming it live from game-streaming platforms like Twitch, which has seen viewership jump 20% so far in March compared to the same period a year ago.

As I talked about in this piece and this piece, gaming and online streaming is on the rise. That’s helping accelerate a major trend that will be in place for many years as it plays out.

Historically, during rough patches in the economy, gaming sales have held up relatively well. Now that you can download games directly to your console as opposed to going out to a store to buy a physical disk, that trend should hold.

Another one to think about is property and casualty insurers. W.R. Berkley (NYSE: WRB), for example, grew sales 4.1% to over $6.6 billion last year. Operating cash flow nearly doubled from $639 million in 2018 to $1.2 billion. Meanwhile, the company ended the year with a combined ratio of 98.4 in 2019.

As a refresher, the combined ratio measures insurance profitability. It is calculated as expenses and claim losses divided by premium collected. A combined ratio below 100 shows that a company is generating an underwriting profit. Above 100 means it’s operating at a loss.

Longtime readers know that I love investing in great insurance companies. The Travelers Companies (NYSE: TRV) is another P&C insurer worth considering.

Action To Take

There are plenty of other values out there. I’ve been curating my “coronavirus shopping list,” which I’ll discuss more as soon as I can.

In the meantime, there’s a lot of opportunity out there. But don’t rush it. You don’t have to invest all the cash you have. But if you have a long time horizon, then you can start dipping your toe in the water with some of the bargains out there.

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