kennethkohwk
- Sep 24, 2021

Evergrande sell off? Now is the time to buy if you believe the Bull Market is still intact.

My apologies for being a little late.

As usual, once the headlines for a start of a systemic crash of the China financial system due to Evergrande's bond defaults hit the mainstream, I started to research under the hood of the market.

This presentation gives my thoughts.

My conclusion is as follows:

1) I give reasons why the US Bull Market is still intact.

2) The recent correction is a moderate one, and unless a new bear market is morphing, it's a reasonable time to buy (some) US equities.

Reasons the Bull Market still intact

•Yield spread not inverted (Good)

•10-year yield increased (Good)

•SPX earnings and buybacks stillabove moving average (Good)

•Housing starts and employment positive (Good)

The Pullback is at reasonable levels:

•The extent of the correction the same as the Mar 2021 pullback. (Moderately short term cheap)

•Smart Money is optimistic (Good)

•SPX is expensive, but the stocks in the Russell (Small Cap) is very undervalued in recent history and will revert to mean as long as the bull market is proven to be intact.

•Might have a second leg down, or not. But a bottom is forming…

Also note that the SPX is expensive, but some pockets of stocks outside of the SPX universe are not.

Strategy: Start increasing exposure (not at once):

•Buy speculative bombed out stocks (AUD, BTRS, OSCR) for high risk, higher rewards. Don’t put more than 5% of your portfolio in each.

•Buy undervalued stocks with good predictable cash flow that have the potential to increase buybacks and dividends. (ET, VST, NRZ)

•Increase exposure to energy stocks due to recent heavy pullback.

•Conservative: Oil Majors (XOM, RDS.B) historically high dividends.

•No debt oil producer: MGY.

•High beta: Oil service OIH.

•Special cases:

•Valuetronics (Special case of waiting for bad news but is getting too cheap to ignore)

•OIHC (Cash rich. Took a big loss this year. Business looks intact. Book value at $5+.)

Add a stop loss in the unlikely chance a bear market situation is in the making.

Here's the link to my recent PDF outlining my thoughts:

Take care of yourselves!

God bless!

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