I’m mystified by the recent strong rally in stocks. Historically, markets look ahead 3-6 months, and that’s reflected in the prices. But what is the world going to look like by the fall? asks Gordon Pape, growth and income expert and editor of Internet Wealth Builder.
Unemployment will be high, corporate profits will be suppressed, global supply chains will be strained, demand for oil will remain low, money for new capital expenditures will be scarce, and many people will need government help to survive.
That’s not a recipe for a rising stock market. I think once investors realize how long and difficult the road back is going to be, we’ll see a new downturn that will test the March lows. I don’t expect a true recovery to begin much before the first quarter of 2021 and even then, I think it will be tepid at best.
I’m not suggesting you should avoid stocks during this period. But they must be carefully chosen. I would not invest in broad market indexes at this point.
Rather, look for stocks that are likely to at least hold their value during this crisis and will emerge in a stronger position when its over. I call these "Cornerstone Stocks". They offer products or services that are in high demand (many are essential services), have a sound balance sheet, and pay a sustainable dividend.
Here are five Cornerstone Stocks I believe are worth considering at this time. Layer in these positions slowly as the market looks pricy right now.
Franco-Nevada (FNV)
Gold has always been a safe haven investment and it looks even more attractive now as the U.S. Federal Reserve Board has become a money-printing machine, weakening the U.S. dollar. I like this stock because it’s a royalty company – it doesn’t have to carry the cost of finding, developing, and operating new mines. The shares are up 43% so far this year.
Walmart (WMT)
Many companies are suffering during this downturn, laying off millions of workers in the process. Walmart is not one of them. Sales are booming – The Wall Street Journal reported last week they were up 20% year-over-year in March.
As a result, the company is hiring, big time. The retailer has added 150,000 new jobs and plans to hire another 50,000, although these positions will be mainly temporary. The stock pays a quarterly dividend of US$0.54 (US$2.16 a year), to yield 1.7%.
Costco (COST)
Costco is another retailer that’s doing well. March sales were up 11.7% year-over-year, although the numbers going forward may not be as impressive due to new social distancing rules at its stores. The company showed confidence by raising its quarterly dividend by 7.7% to US$0.70, effective with the May 15 payment.
AT&T (T)
Communications companies may suffer some revenue declines this year, but these are solid companies with steady cash flow and strong balance sheets.
AT&T’s CEO has stated the company has a strong balance sheet and is committed to fulfilling its dividend obligations. Despite that, the shares are trading below US$30. With a $2.08 annual payout, that works out to a yield of better than 7%.
BCE Inc. (BCE)
BCE has not made any commitment to maintain its dividend that I know of and first-quarter results aren’t due until May 7. As with AT&T, sales and earnings may be below expectations, but I don’t expect anything extraordinary. With a yield of 5.9%, this is a core stock to hold through the crisis and beyond.
