Yahoo Finance Pandemic-proof: How to invest in US stocks
Now is a good time to jump into the stock market if you’re in it for the long run – but make sure you do your research on the company before you invest in it.
That’s according to US investment experts Roger Montgomery, founder and chief investment officer of Montgomery Investment Management, and Josh Gilbert, market analyst and senior account manager at social trading platform eToro.
Speaking on the 7th episode of the Yahoo Finance Breakfast Club: Live Online series, Montgomery and Gilbert said they had observed a high volume of new investors jumping into the stock market to take advantage of the recent dips.
“People are looking for undervalued stocks,” said Gilbert. “They’ve only ever seen stocks go up. So when they see it go down, they see it as an opportunity.”
Previous episode of YFBC: Coronavirus survival tips: Small business experts reveal secrets to getting through a crisis
However, jumping in now would only be worth it if you were willing to hold your stocks for the long haul, said Montgomery; some traders new to investing were treating it like gambling.
“If you want to get rich, buy and sell. If you want to get wealthy, buy and hold, provided you own really outstanding businesses,” he said.
5 US stocks hand-picked by the experts
The pair revealed their pick of the bunch for investors just beginning to explore the US stock market.
Gilbert, who said he felt the tech industry was still undervalued, flagged payment processing company Square (NYSE: SQ) and Facebook (NASDAQ: FB) as his top choices.
“Maybe not a lot of people have heard of [Square] before … and the reason I like it is because they’re a competitor to Paypal, and Paypal obviously are huge,” he said this morning.
But 50 per cent of Square’s revenue in the last quarter of FY2020 has come from Bitcoin payments. “So love it or hate it as an investment, you can't ... ignore it as something is going to be entering the market – Bitcoin is one that will be used more frequently as time goes on. So square as a business is one that I feel is very innovative,” he said.
And while Facebook has its share of challenges, Gilbert said that the social media juggernaut is “really strong in terms of how innovative they are as a business”.
“They are one of those ‘FANG’ stocks – they're up there as one of the biggest cap stocks, and it's very stable. So in terms of looking at them and what they've done a year and a half, they're up 75 per cent,” Gilbert said.
Not only that, but Facebook has other platforms under its belt, like Instagram and Whatsapp. Instagram remains one of the most popular social media platforms and recently integrated with Shopify, which will see Facebook continue to grow.
However, Montgomery said investors should be aware of the anti-trust movement that has placed Facebook in the spotlight in terms of privacy and data security issues.
“That’s something you really need to understand well because there is a force that is pushing against the monopolistic behaviour of Amazon and Facebook and Google,” he said. This isn’t a reason not to own these stocks, but investors should be mindful of these factors.
“Big companies like this have been broken up in the past, and that has implications for investors. So just be aware of that,” he said.
Montgomery said his three top picks were Vivendi, Spotify, and Carnival Cruises.
Not many people have heard of Vivendi – but they’ve heard of a major brand they own, which is Universal Music Group, the chief investment officer explained.
Vivendi (VIVEF) is headquartered in France, but makes a significant amount of its revenue in the US from music streaming and digital downloads.
“They own the biggest song library in the world. More than half of all songs in the world are owned by the Universal Music Group,” he said.
The amount of money being spent in digital downloads and streaming of music is many times more than the amount of money that was ever spent on physical CDs, Montgomery added. Additionally, the overheads of producing physical music – buying a blank CD, getting the artworks and graphics created, boxing it up, wrapping it in cellophane, and sending it across the world – were much higher.
“The margin was 10 per cent. [But] just upload it to the cloud, Spotify and Apple do all the marketing of the songs, and their margin is over 60 per cent,” Montgomery said.
For these reasons, Spotify (NYSE: SPOT) is a stock that has “one of the biggest positions in our portfolio,” he added.
And another “super-speculative” stock that hinged upon a vaccine being discovered and distributed relatively quickly was Carnival Cruises (NYSE: CCL). The reason is because people were showing significant signs they wanted to travel again after the pandemic passes, Montgomery explained.
In response to an email by a cruising company asking whether customers wanted a full refund or $200 additional credit to be used for a future cruise, 99 per cent of customers took the additional credit, he said.
“The desire to cruise is still there and there’s massive pent-up demand. As soon as there’s a vaccine, we’ll go back to normal. We won’t get back to normal until then.”
Disclaimer: Note that the above is only general advice and does not constitute financial advice.
Catch up on the previous Yahoo Finance Breakfast Club: Live Online episodes:
Episode 1: Experts’ 9 top tips for starting to invest
Episode 2: Coronavirus could force property prices 40% lower
Episode 3: 7 secrets to job-hunting during the coronavirus pandemic
Episode 4: 5 money lessons during a pandemic: Rich Dad, Poor Dad author
Episode 5: Experts reveal 7 ways to hack your super during coronavirus
Episode 6: Coronavirus survival tips: Small business experts reveal secrets to getting through a crisis
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