By Andrey Dashkov, analyst, Casey Research

Nick Giambruno

Last week, I told you about Special Situations… and why I think COVID-19 qualifies as one.

To recap, Special Situations happen when outside forces distort the market’s normal pricing mechanism.

And despite promising vaccine breakthroughs, there’s still lots of uncertainty ahead…

Like when they’ll be rolled out to the public… how effective they’ll be… when things can return to normal… how much stimulus will be needed to jumpstart the economy… and so on.

And with all that uncertainty will come more volatility. In other words, COVID-19 isn’t done distorting the market.

But with that disruption lies opportunity…

That’s why in early March, I recommended some panic bargains to have on your radar.

I recommended 20 companies with cheap valuations and good dividends to consider adding to your “COVID Portfolio.” Some were even trading at valuations 98% lower than their five-year highs.

Usually, a cheap company is a better bargain. As for dividends, it’s mostly well-established and relatively safe companies that pay them. After all, no company is going to take on that unnecessary risk when there’s enough uncertainty in the world.

That’s why I was confident these companies would be pretty safe bets… and deliver some solid returns.

So how did they perform?

Outperforming the S&P… Without Any Sleepless Nights

Take a look. The chart below shows how those 20 companies did between March 13 (the day after I recommended them) and December 8.

As you can see, my COVID portfolio returned 37.5% on average, outperforming the S&P 500 by one percentage point.

That might not sound like a lot. But remember, I selected companies that looked cheap. Usually, “value” stocks, or the stocks that look inexpensive, underperform “growth” stocks – which are the supercharged and volatile companies like Tesla or early stage tech startups.

The S&P 500 is heavily weighted toward “growth” stocks these days. But my COVID portfolio still outperformed the index.

And some companies had stellar returns. Among the top performers were News Corporation, Diamondback Energy, and Twitter. They delivered 76%, 70%, and 62%, respectively.

Even better, the portfolio had a 90% “hit rate” – only two stocks posted negative returns as of writing. And the largest loss on a single position was just -11%.

In other words, this portfolio wouldn’t raise your blood pressure during down times. That’s really important in a crisis.

Overall, I’m happy with how this list of stocks performed… and I’m sure some of our readers are, too.

However, keep in mind, I wouldn’t use this table as a guide today. Things have changed a lot since March, and the market is back up from its extreme lows. The time to buy into many of these companies has passed.

There’s a better way to play it today…

What’s Next?

As I said last week, COVID-19 will continue disrupting both the economy and the investment world. There are just too many “what ifs” for the market to react with any certainty.

So what should you do in the meantime?

Invest in the highest-quality companies. When I say quality companies, I mean companies with a great financial profile and a lot of growth on tap. Because quite often, they give you the best upside… while limiting your downside risk in uncertain times.

In fact, I’ve developed an investing system to help you target these exact types of stocks with high-quality financials. And the system’s outperformed the S&P 500 by a wide margin since 2000.

I’ll tell you more about it here in the Dispatch in the new year…

But for now, I’ll leave you with three companies that score really well on that system. Note that all of them pay dividends. So you’ll receive a stream of income while holding them.

Name Symbol Market Cap, Billion USD Dividend Yield
Lockheed Martin LMT $100.5 2.9%
Wabash National WNC $1 1.7%
Applied Materials AMAT $82 1.0%

Sources: Bloomberg, Capital IQ

Going into 2021, I recommend taking a good look at your portfolio and considering the stocks above. Just remember to position size accordingly, and never bet more than you can afford.

Good investing,


Andrey Dashkov
Analyst, Casey Research