The Week Ahead
By: Tim McPartland,
After the relatively severe beatdown of last week we are looking to execute a couple items this week. 1st off we are looking to dump 1 BDC issue (which we do not know yet). Simply put BDC’s have performed poorly over the last 6 months–although tossing off high yields which softens the blow. We hope to get through some BDC portfolio’s checking for oil and gas related holdings–just 1 factor that could affect BDC’s. We think the poor performance of BDC’s could get worse in the months ahead as the global economies potentially slow even further. This is counter intuitive as the U.S. economy is likely to accelerate in the quarter ahead–even we are feeling good as we fill our gas tanks. We have learned over the years that we want to lighten up on poorly performing issues–in particular those that perform poorly when the rest of the market is doing great. You shouldn’t be buying into the ‘buying opportunity’ story – the buying opportunity comes when issues are down 50%–not 20%.
2ndly we would like to find a decent food related common stock with a good yield. Our thought here is more related to a consolidation we think is coming in the big food companies (i.e. General Mills, Conagra, Tyson etc.). Growth and profits have not been stellar in this segment and we believe that they will only find growth through acquisition. Our hope would be to find 1 additional food company that would pay us reasonably well to wait–consolidation could take awhile.
With oil down to the $58/barrel area one should continue to observe the sector and determine where potential bargains are being created. There is no rush as the poor financial performance, consolidations and bankruptcies are yet to be determined–purchasers should be in no hurry.