November 27, 2019
Depending on one’s point of view, markets have either been relatively stable recently or marching subtly higher, all while waiting for an outcome of the many major market moving issues such as a China/USA trade deal, impeachment, and Brexit.
When there is a detente in the market, companies experiencing serious sell offs tend to decline, however there were a few companies worth looking at that have experienced serious declines over the past few days. Let’s take a cursory look.
CenterPoint Energy (CNP): This utility owns substations and a gas distribution network and has both a healthy balance sheet and high quality revenues from a broad customer base. The significant price drop was the result of a downgrade by an analyst who highlighted an expected ruling on rates by the Texas Public Utilities Commission in December which will negatively impact revenue. Typically utilities are excellent holdings when markets are heading down, so if you agree with some of the market bears, then CNP may offer a nice entry into a utility stock with a dividend in the range of 4.5%. Certainly worth looking taking a deeper look.
Dollar Tree (DLTR): The US/China trade war has been causing many gyrations in the market, and Dollar Tree is now a case in point regarding the real impact. Prices of all those ‘made in China’ goods at the dollar stores are rising, impacting margins. The company has a strong balance sheet, very good revenues and continues to perform well so if you want to make a bet on low end retail, this could provide a nice entry point.
Expedia (EXPE): Expedia is a well known on-line travel company, offering tickets for all planes, hotels and much more. Their primary channel is through on-line search engines and changes in that marketplace have hurt the company and are expected to continue forcing on-line travel agents to adjust. It may be too early to tell what the impact will be, but for now investors have chosen to sell first and wait for the dust to settle. With a strong balance sheet, a well known brand and robust revenue, Expedia may be worth a look after the 30% off sale.
Many of the companies highlighted here are troubled companies. It may take a while for the market to absorb and respond to the information that led to the steep price drop. Therefore it may be wise to build a position over days or even weeks to allow all information to be understood by the markets. It is rare to ‘buy the bottom’, and dollar cost averaging is an excellent approach.
Nothing written here should be construed as investment advice, and I recommend you look into these companies further before making any investment decisions.