Buy My Shirtless Ragamuffins

The theme here is re-assertion of earnings power to previous peaks no more than two years out. I have taken already a major position in Macy’s as most doable barring recession. Skeptical on IEP as I don’t see stronger energy prices. Hawaiian Electric is the most difficult to build out a recovery story. Easiest to model is Ford and American Airlines, right now.

Trail-blazing stocks like Microsoft, Apple and Amazon do peak out. I write covered options against such positions and lose money.

Nowadays, triple stocks like Microsoft levitate whale a 12 dollar number like American Airlines, stagnate . AAL’s numbers are chancy, while Microsoft, like Ole Man River just keeps rolling along.

In my teens I peddled blown up cat balloons at the Macy Day Parade. I’d net 50 bucks on my stock that cost me around 20 cents apiece. They called me Pinkus the Peddler.

I retain a soft spot for stocks that trade around 10 bucks. Bought Nextel. It started off as an independent telephone network that sold at $3. When it developed a

legit cellular system nobody believed the user saturation level would exceed 10%.

But, usage kept expanding and I tapped out at $33. So much for analysts projections. Years later we’re above 110% saturation.

Deeply embedded is the concept that legitimate operators with wherewithal to run their business in hard times do survive. Halliburton a good example. Past oil cycle it peaked over $30 a share and then crumpled to five dollars. Management cut back overhead sharply and survived.

HAL has gone around the clock six times and trades today in the thirties. Such a heady gain is the equivalent of a growth stock’s trajectory over a five-year span. But, where’s Polaroid and Xerox now? Don’t ask.

Finding ragamuffins ain’t a seat-of-pants exercise. Mike Milken invoked his MAD Ratio: The market value of a company’s equity had to equal the market value of its debt. Such equilibrium indicated the company in question was bankable. It could sell debt and equity, and stay in business. This was true in the case of Chrysler. Under Iacocca, a big winner

Spring of 2020, my list of playables proved extensive. It included even General Electric, Alcoa, Ford, even MLP, Energy Transfer Partners. Sold at a yield of 9% now 7.5%. Included US Steel, too, which now trades in the thirties with a would be acquirer’s bid in the thirties.

Nothing is easy. Consider Walmart, just sunk 10% overnight on a disappointing quarterly report. I rank Macy’s, selling in low tens as one of my newly embraced properties. There’s $2 a share in latent earnings there even in a soft economic recovery. No FRB tightening is coming and the money supply is ample. Retailing is a legit recovery play. So Ragamuffins selling at 10 times recovered earnings make sense. No recession around the corner.

Playing the shirtless wonders, you need diversity by industry groups. Let me cite half a dozen stocks I’ve begun to dabble in. First is Macy’s, which I regard as a seasoned retailer with geographic diversity, starting with its parent store in Times Square. I see recovery earnings at $2 a share. The stock can sell at 15 times expected earnings. Puts it in the thirties, a double.

Some prospects are cyclicals, industrials like auto makers. All are familiar. Ford sells at $10. Then, there’s Cleveland Cliffs which aims to take over U.S. Steel. In the 2008–’09 financial mess, I tapped out with Lehman, which had dabbled in real estate and lost balance sheet stability.

I see American Airlines is a legit spec at $12. Upcycle earnings power is over $2 a share. Master limited partnerships, yielding 8% are still feared because lower energy quotes do impact their pipeline through past volume. My investment is in Enterprise Products Partners, but my spec is Energy Transfer Partners yielding 8%.

Retain the basic theme of a relatively friendly FRB, moderate interest rates, and normalized GDP expansion. I hold, too, some 2-year Treasuries currently yielding 4.7%. It’s above the rate of inflation.

If you care, use 2-year Treasuries yielding 4.7%. They cover you on the expected rate of inflation these days. Not my game which is doing things I’m afraid to do.