Recently, I sat down with my colleague Garrett Baldwin to talk about the one thing that’s on everyone’s minds lately: what to do in the midst of the coronavirus panic.
Sensibility is in short supply nowadays, with everyone either acting like we’re on the brink of the zombie apocalypse and buying their local Walmart’s entire stock of toilet paper, or not taking a damn ounce of this situation seriously and hosting “quarantine parties” in their backyard. There’s little gray area.
So, Garrett and I wanted to reach out and tell you how it really is. Because what you need now is clarity, honesty, and common sense.
What’s Really Going On Right Now
Click on the link below to listen in.
Now, if you absolutely have to be in the markets right now, here’s what you can do:
You can sell calls or puts on private equity leader KKR & Co. Inc. (NYSE:KKR). KKR is one of the oldest and most successful private equity firms in the world. Private equity films are going to have a field day being the buyer of last resort in the current market and economy, and they’ll make a fortune for themselves and their investors over the next several years. Even better, KKR likes to invest alongside their funds so those huge gains will drive the price of the stock higher for long-term investors.
Given the high volatility in the stock market, you can buy shares of KKR for about $20 and sell the KKR June 19, 2020 $26 Calls (KKR200619C00026000) for right around $1.30. If the stock is called away, we make a three-month gain of about 37%. If is not called away, then we sell new calls on the position.
You can also sell the KKR June 19, 2020 $15 Puts (KKR200619P00015000) for about $1.50. Do not use margin. Deposit the full purchase price of the stock before selling the put. If the stock is not put to you, you make about 7.5% over three months for an annualized return of 30%. If the stock is put to you, you own one of, if not the, best private equity firms on the planet at about four times earnings with spectacular upside potential.
Here’s what Garrett suggests:
If you absolutely have to be in the market right now and you’re not worried about downside risk, or if you’re focused on the long-term upside here, I would say that your best bet would be Walmart Inc. (NYSE:WMT).
I know that this isn’t setting the world on fire, but there is something important. We are going to need a national response that we haven’t seen since World War II, and it will be largely on the private sector to pull its resources.
The government failed to address this ahead of time. Senators were too busy selling stock to warn the public. So, I have no faith in government agencies – starting after Hurricane Katrina – to be in charge of mass mobilizations.
We are going to see very large companies with a huge amount of market share increase their reach across the country. They will consolidate supply chains. They will effectively become major distribution partners. The little ones that can’t mobilize will either die or integrate. That makes major players in markets that already look like monopolies the natural candidates for what to own in the year ahead… if things erode further.
That makes Walmart a stock to own over the next year. Again, there is still potential for more downside in this market. About 90% of all Americans live within 15 minutes of a Walmart. I don’t think that we need to have much more of a discussion about how big and important Walmart is.
While many other retail shops might be shutting down, Walmart is hiring more than 100,000 people to address this generational shift. If it struggles, it will receive government support in resources or the clearing of red tape. By the time this is over, it will carve deeper into the 40% of the grocery market owned by smaller competitors, and it will only see more demand in the retail space.
Thanks for tuning in.
To the Max,