Back in January, Jeffrey Bierman surveyed the U.S. stock market landscape and called it a “slow-motion bear market,” forcing investors to face the fact that “the Fed-fueled fantasy bubble has popped.”
U.S. stocks have since rebounded, but Bierman, a professional stock trader with more than three decades of experience, is convinced that stocks aren’t out of the woods yet.
Bierman lectures on TheoTrade.com and TheQuantGuy.com, and is an adjunct professor of finance at Loyola University and DePaul University, both in Chicago. In this recent interview, Bierman offers up a number of stocks — all of which he owns in his personal portfolio — that he believes are strong enough to weather the stiff blow he sees hitting the market.
MarketWatch: What’s your outlook for the U.S. market right now?
Bierman: The market has been led by tech and so I expect a rotation out of technology and into the lagging sectors. Technology has run its course for now. Because of the bank overhang, I believe that cloud is going to cast a pall over financials. There are land mines with other banks that haven’t shown their hand yet.
“ Retail and oil are going to make a comeback because their valuations are compelling. ”
Technology and industrials could be vulnerable to a 20% to 40% correction. Will the entire market fall off a cliff? No. Retail and oil are going to make a comeback because their valuations are compelling. However, sectors near their 52-week high that are way overpriced and have yet to correct include consumer staples, consumer discretionary, and technology.
MarketWatch: Which stocks are you liking now?
Bierman: I really like oil stocks, including Devon Energy
DVN,
Apache
APA,
and Occidental Petroleum
OXY,
Most oil stocks are trading at deep discounts to their long-term growth rate. They have been dinged because a lot of people have priced in a recession for oil. If the event has already been priced in, then oil can start to recover. I think that oil stocks with dividends are going to make a comeback.
On the long side, I like Harley-Davidson
HOG,
The stock trades at a ridiculously cheap multiple and the company is not that susceptible to a recession. People who buy Harleys buy them regardless of the economic backdrop. Another retail stock I am bullish on is Nordstrom
JWN,
I also like low P/E, high-dividend pharmaceuticals including Pfizer
PFE,
and Baxter International
BAX,
MarketWatch: What is going to happen with inflation?
Bierman: Inflation goes up like a volcano and it comes down like a feather. Because inflation has been bottled up for so long in a zero-interest rate policy, it may take a lot longer to contain than the public thinks. The public and Wall Street has made up its mind that the rate-hike cycle is almost over and inflation is going to come down “tomorrow.” It might take two to three years to get inflation down to 3% or even 4%. The inflation genie is not going back in the bottle anytime soon.
“ Where to put your money? Stocks — but low-multiple, high-dividend-paying stocks. ”
MarketWatch: How should people trade or invest in an inflationary environment?
Bierman: In an inflationary environment, move towards hard assets such as gold
GC00,
and cryptocurrency, and away from bonds. Here’s the problem: These assets have already moved so far and so fast on a percentage basis that they are no longer the hedge that you want to be in during an inflationary environment.
Where to put your money? Stocks — but low-multiple, high-dividend-paying stocks. That’s the key. The market hates value stocks but that’s the place to be in an inflationary environment and slowing growth.
MarketWatch: What should a buy and hold investor do?
Bierman: It is still not an investor’s market. An investor’s market is when interest rates are declining, inflation is under control, sales are up, and hiring is up. You have none of that. You have many headwinds: unemployment going up on layoffs, inflation not contained, and rising interest rates. Right now, if you are buying and holding, the chances are good you will underperform. Once we get back to a low interest rate, low inflation, growth environment, then buy and hold will shine.
MarketWatch: What should a short-term trader do now?
Bierman: With a market like this, you need to be a swing trader, and you need to be a sector swing trader. Ride one sector for a quarter up and then bail on it and ride another sector for a quarter. It’s like musical chairs — hopping out of one sector and hopping in another sector. Short-term swing traders will outperform buy and hold investors in this volatile market.
MarketWatch: What general advice do you have for stock investors, no matter what market conditions they encounter?
Bierman: Don’t assume when the market makes a move it is fundamentally driven. Most days, the market has completely irrational price movements based on order flow. In other words, don’t worry about today. Look ahead and try to get ahead of the curve. Figure out what will happen in the next three to six months. The market is hooked on this immediate gratification type of mindset. Put another way, don’t chase performance. That is a very lethal practice.
Michael Sincere (michaelsincere.com) is the author of “Understanding Options” and “Understanding Stocks.” His latest book, “How to Profit in the Stock Market” (McGraw Hill, 2022), is aimed at advanced short-term traders and investors.
More: The U.S. economy is headed toward recession: That’s what the leading index keeps signaling.
