A lot of my current picks — and my world view — center around the idea that we’re very late in the economic and credit cycle in this extremely long-term bull market, cautions Mike Larson, senior analyst at Weiss Ratings. Here are excerpts from a panel discussion at the Las Vegas MoneyShow covering mid-term election stock picks.
Some of the picks that I mention are a little more macro in nature and they’re balanced out by a few micro stories, a few companies that I think are going to prosper even if we’re at a very late stage in this economic cycle or economic expansion so, with that said, I’ll try and go through a few of them.
Extra Space Storage (EXR) is my first pick, with 3.4% yield and an $11.6 billion market cap. They’re in the self-storage space. They’ve got more than 1500 self-storage facilities,1.03 million units, and no state, no region of the US makes up more than 17% of its portfolio so it’s diversified geographically, which is something that I like.
I think it’s sort of a noneconomic type pick because unlike other sectors of the real estate market, industrial or retail, REITs, for example, self-storage is really something that can prosper whether the economy is booming or not.
People have to relocate for either good reasons when they’re positive on the market or bad reasons when they’re not and, frankly, we all have a lot more stuff than we used to and you see it in this company’s numbers.
It’s been a strong performer, grown its dividend by more than 210% over several years, and it still, despite doing a lot of M&A over the course of its history, still only has about 5% of the national market so there’s room for expansion on that front as well so that’s one that I like.
Next is MGE Energy (MGEE), with a $1.9 billion market cap and a 2.3% yield. It is a Madison, Wisconsin, based electric and gas utility. It's not a real sexy story, but they’ve been around since 1855. They’ve increased their dividend every year for the last 42 years and paid a dividend every year for the last century.
Nothing to get too excited about in terms of revenue or earnings growth. Again, it is a little bit stodgy but I think that it’s a solid conservative and potentially rewarding defensive type play if I’m right about where are in this cycle.
A more speculative name is Gold Resource Corp. (GORO). The market cap is only about $319 million there and despite its name, it’s not just involved in gold and silver mining. It also has some exposure to base metals and this is a neat one if you’re interested in the mining sector at all.
Gold plunged from about $1900 an ounce in 2011 to around $1000 and change in 2015. But despite that extremely stressful period for the gold mining industry, this company managed to stay profitable for all seven years and it also maintained, albeit very small dividend, a token dividend throughout that time as well.
It operates in geographically stable regions, Southern New Mexico and Western Nevada. This is not a company with a lot of exposure in very hostile environments, geopolitically.
Another pick is predicated on the idea that we’re in the late cycle environment. Credit quality has been phenomenal and has been improving since about 2009. It is now starting to turn.
We’re seeing credit card defaults and delinquencies starting to rise. We’re seeing it happen in auto lending and, believe it or not, we’re finally seeing an incipient turn in mortgage quality after a phenomenal run for that so you’ve got that issue to contend with, a potential turn in the credit cycle.
You look at the collapse in the yield curve, multiple measures of the curve are at levels we haven’t seen since 2007, give or take, and that’s going to be an issue for profitability and I think it’s noteworthy that despite the fact that the Russell 2000 is trying to make a new high here, financials are underperforming the broader market.
If you look at the Financial Select Sector SPDR (XLF), for example, it’s under its January high despite rallies in sectors like tech. So if you’re looking to hedge, if you’re looking for a potential speculative pick, I do believe that for the first time in many, many years, there may be some value in looking at a bet against the financial sector.
Finally, one last thing I would point to is ProShares UltraShort Euro (EUO). This is a pick that’s predicated on an advance in the dollar. I think that there are a lot of headwinds for the dollar in people’s minds and worries about our debt load and things like that but, frankly, we have it better off than a lot of other regions and currencies, including Europe.
The euro is the most heavily weighted component of the Dollar Index, about 58% of that, and you look at where our interest rates are relative to Europe’s, the Fed is actually tapering and dialing down the balance sheet versus Europe where that’s not happening yet.
Frankly, if you look at a lot of the borrowing that’s been going on in emerging market economies and so on, those countries are starting to get into a lot of trouble. They’ve borrowed a lot of money in dollars, their currencies are going down, their stock markets are underperforming. I think a lot of money is going to be repatriated into the dollar so, long story short, I think ProShares UltraShort Euro is a nice additional play.