Stock Picks for September 2024
Today is September 12th, 2024
It’s time for a new stock pick video. I’ll first do an overview of current financial and economic conditions and then give you my new stock picks based on the merits of the individual companies and as well as how they fit in this economic environment.
Economic Outlook
Over the last couple years, after first easing a fair bit in monetary policy, the US Fed raised interest rates from 0% post covid to over 5%. Typically, that leads to a slowdown in economic activity because two thirds of the economy is the consumer. The consumer finances things like housing through mortgages and transportation through car loans. As the interest rate on these loans gets higher it is more expensive to service those loans and as a result there is less money left in the customers’ pockets to spend on other things. There is a lag in that kind of slowdown from the time the Fed raises rates to when it (the slowdown) actually happens. It could be 18 months or longer or a little bit shorter.
Fiscal Stimulus
What we’ve had at this time was a fiscal stimulus with especially the US government spending a fair bit of money on various things through the Inflation Reduction Act. Especially through deficit spending, meaning they spend more money than they bring in from tax revenue. Government spending counteracted the expected slowdown from the consumer, so we’ve had a reasonably strong economy and strong stock market. Typically, what happens, if history is to guide us, when the Fed cuts for the first time, a bear market follows, meaning a correction in the stock market, and it typically lasts about 12 months. The typical drawdown as they call it, the largest difference from the high to the low, is just under 30%, which sounds like a lot and scary but stock markets do these sort of gyrations.
The US Election
I think this time may be a little bit different, maybe not as bad because governments, especially the US again, are expected to continue with deficit spending regardless in fact of which administration gets the House White, whether it’s a Harris administration or a Trump administration, they are both expected to continue deficit spending, so it makes very little difference come election time in November, from the point of view of deficit spending. It makes a difference in other ways but from our perspective here as investors it doesn’t make that much of a difference. With that in mind it’s a good idea to have some consumer staples or more stable companies, stalwart type companies in the portfolio. Emphasize those for the next 12 months and perhaps underweight the more cyclical companies, the ones that are more affected by what happens in the economy. Like I said already this time may be a little bit different than previous rate cutting cycles by the US Fed.
Bristol-Myers Squibb (NYSE:BMY)
My first stock pick for September 2024 for the next 12 months and beyond is going to be Bristol-Myers Squibb (NYSE:BMY). It’s a large pharmaceutical company with a large portfolio of products. The stock has underperformed the market for the last several years actually but that’s from my perspective a good thing because the valuation is now more reasonable. The business is still doing well and the stock is still fairly expensive but the valuation is now more reasonable. In fact, in times of market corrections in the stock market the healthcare sector is one sector that tends to do well. Regardless of that, here’s a case where we can have a good company at a good price and regardless of what happens in the stock market over the next 12 months it’s good to hold it for the next 10 years.
Cal-Maine Foods (NASDAQ:CALM)
Stock pick number two, is more of a consumer staple. Cal-Maine Foods (NASDAQ:CALM). They actually produce shell eggs like chicken eggs and sell them to grocery store chains. They have nutritionally enhanced, cage free, organic and brown eggs.
These sorts of companies do well regardless of economic conditions if the business is sound. The industry that they’re in should do reasonably well regardless. The question here is, is this a good company and I think it is. It has had a pretty stable profitability in its history in the last 10 years or so with the exception of one year, 2017, where it lost money. Every other year it was pretty profitable. Hopefully it continues to do well in the future. Again the price is reasonable so it should be a great company to own for the long term.
BW LPG (NYSE:BWLP)
My third stock pick is going to be a transportation company BW LPG (NYSE:BWLP). This is a shipping company that primarily ships Liquified Petroleum Gas. It’s an Energy Transportation company with tankers in and that sort of thing. It’s cyclical so it should get affected by a slowdown not in a good way. However, the company has been very profitable. Yes, it does get affected in economic slowdowns, but we need to own companies that can do well in a better economic environment as well and energy needs are going to be here for the foreseeable future. Somebody needs to transport this energy and they are a very good profitable company and hopefully will do well holding it.
Give Us a Call
As always if you’d like an opinion as to whether these fit into your diversified portfolio already or if you have any other investment questions, please don’t hesitate to give us a call. Thank you, have a great day!
- Stock Picks for September 2024 - September 12, 2024
- Stock Picks for August 2024 - August 9, 2024
- Stock Picks for January 2024 - January 11, 2024
