Buy boring stocks when this rout is over, investor says

Are boring stocks now sexy?

The wholesale market selloff continues unabated but investors with resources at the ready should do well once the carnage is complete. Where should you be looking? Rob Lauzon of Middlefield Capital says to go for cyclical names as well as high-quality tech before jumping into higher-growth companies.

Thursday’s markets are showing no sign that the broader escape from equities is reaching its nadir, with indices including the Dow Jones, S&P 500 and Nasdaq all dropping lower as concerns over the coronavirus —now designated a worldwide pandemic by the World Health Organization— continue to impact economies around the globe.

For how long and how far the pandemic will go is still unclear. Even as China has begun reporting fewer COVID-19 infections, European countries and the rest of the West are now preparing for what health experts say is an onslaught that will likely get much worse before it gets better.

And with the United States recently taking the bolder step of shutting down travel from Europe, indications are that not just China’s massive economy will take a major hit from the health crisis but that the massive economic engine that is the US will likely falter in 2020 as well.

Not only has the depth of the market calamity been shocking —just a month ago Wall Street was riding high on optimism of a continued bull run— the speed at which stocks have fallen is remarkable.

Whereas the last bear market, occurring during the 2008 financial crisis, took months to fully emerge, this time around it has taken less than three weeks to drop the Dow into bear territory, represented by at least a 20 per cent drop in value.

Lauzon says it could be many months before the ship gets righted, but when it does, investors should tread carefully at first.

“Once we’re in the clear, maybe it's six months from now, and once we've been washed out then you can start looking at more cyclical value names, which could include some high quality energy names, would include the financials, would include industrials, that's where I would look,” said Lauzon, managing director and deputy CIO at Middlefield, who appeared on BNN Bloomberg Wednesday.

“But until that time where I would be looking is REITs, utilities, health care, quality health care with dividends and stable business models as well as certain consumer staples. And some high quality tech companies with recurring cash flow. That's where I would be now,” he said.

“Coming out of this, let’s assume this isn't going to be a V-shape recovery, that it’s going to be a U-shape recovery, as we recover then you can start looking at the more aggressive tech companies, you could look at your Rogers, your Honeywells and at that point, Suncor if you want it to go into an energy [stock] that’s gonna act a lot better. You might miss the first 10 per cent on the upside, but that's where you’ve got to look,” Lauzon said.