The Market Selloff Signals Both Caution And Opportunity
This is Porter & Co.’s The Big Secret on Wall Street, our flagship publication that we publish every Thursday at 4 pm ET. Once a month, we provide to our paid-up subscribers a full report on a stock recommendation, and also a monthly extensive review of the current portfolio, as we share below… At the end of this week’s issue, paid-up subscribers can find our Top 3 “Best Buys,” three current portfolio picks that are at an attractive buy price. You can go here to see the full portfolio of The Big Secret.
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In our recent three-part series of the Daily Journal, ending yesterday, we made the case for a potential 50% decline in the U.S. stock market (measured by the S&P 500). We explained how the greatest bull market in 50 years fueled a record consumption boom among the top 10% of U.S. households, while the bottom 90% have seen their purchasing power eviscerated by inflation.
We also detailed the growing signs that members of this top 10% cohort propping up the U.S. economy are now tightening their belts. And we laid out a scenario in which the pullback in consumption among the wealthy could be amplified by the recent losses in the U.S. stock market. We also explained how this could lead to a self-reinforcing downward spiral of lower consumer spending, lower corporate earnings, and falling stock prices that would create more pressure on consumer spending, and so on.
Plus, the U.S. economy also faces the dual-pronged threats of a global trade war and a reduction in government spending, which we detailed in our previous portfolio update. Against a backdrop of near-record-high valuations that have priced U.S. stocks for perfection, we continue to urge that investors treat today’s market with extreme caution.
Specifically, we urge that investors pay close attention to individual position sizing and the overall exposure to stocks within a portfolio, and to follow trailing stops to limit downside. We also recommend holding a comfortable cash position, as well as defensive assets like gold, which has gained 15% so far this year and acted as a stabilizing force against declining stock prices within a diversified portfolio.
But despite the risks in the overall U.S. stock market, there are many bargains emerging under the surface of the broad market index.
In this issue, we’re providing updates for six stocks in The Big Secret On Wall Street portfolio that each trade at highly attractive valuations. A few of these stocks have suffered their own brutal bear market, down 50% or more from their previous highs, and some of which trade at their lowest valuation levels in the last decade.
These businesses are facing either temporary operational challenges, cyclical downturns in their industries, or investor pessimism that’s sent their share prices down even while earnings continue to grow. In each case, we believe the market has pushed the prices of these shares down to virtually no-risk buy levels. Importantly, this doesn’t mean we believe their share prices can’t drop further in the near term. But for investors with a long-term time horizon, we believe that owning these stocks over the next three years should come with very little downside risk, while offering a high likelihood of market-beating returns.
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