2 Places I'm Putting Money to Work Amid the Market's Implosion
After last week’s market debacle, I'm keeping calm and trading on. These recent pick-ups highlight where I'm deploying new 'ammo.'
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No one can blame investors for feeling shell shocked after last week’s implosion in the markets. The S&P 500 had its worst week since the Covid pandemic lockdowns. The Nasdaq and small-cap Russell 2000 are now in official bear market territory after falling just over 20% from their recent peaks. Oil declined some 15% during the last two trading sessions.
The scary part is equities could easily drop even further. Stocks would have to fall an additional 10% to 15% to get back to the same valuation levels as before the pandemic, based on several valuation metrics such as the Shiller P/E ratio or the price-to-sales ratio on the S&P 500. On the flip side, any positive news on the trade front could trigger a significant rebound. The VIX just hit the 45 level for the first time in five years, showing there is plenty of panic in the market.
I have plenty of new ammo to deploy into the market as a substantial amount of my short-term Treasury holdings redeem throughout April and May. I am mostly using covered call orders to build positions in both stocks and ETFs. I highlighted two of these recent trades around ETFs in my Sunday column. In today’s piece, I will discuss a couple of recent equity pick-ups after the big recent decline in the markets.
I have started to establish a position in NewtekOne NEWT. I am just adding dollops of equity as the options against the stock are not liquid enough for a covered call strategy.
NewTekOne transitioned from a Business Development Company, or BDC, to a Bank Holding Company, or BHC, in 2023. The stock got walloped last week along with the Russell 2000 as the bank’s loan book is primarily made up of loans to the small business community.
NewTekOne keeps all loan servicing rights and offers a large suite of ancillary services to better retain customers, which is also a nice revenue stream. Its net interest margin is higher than peers and the stock has consistent but small insider purchases.
Trading at just over five times earnings, just under book value and with a well-covered 7.5% dividend yield, NEWT sure looks like a stock that is already priced for a major recession at current trading levels.
I also executed some covered call orders against Dynavax Technologies DVAX on Friday as a good chunk of my current holdings are slated to be redeemed when option expiration hits upon market close on April 18. The stock fell like most did last week, but Dynavax was the only vaccine play I know of that wasn’t hit hard by last Monday’s resignation of the FDA head in charge of vaccines and the overall rout in biotech.
DVAX declined only 5% on the week and there are good reasons for that. The company’s hepatitis B vaccine, HEPLISAV-B, is fully approved and has consistently taken market share from the previous standard of care due to its clear superiority. The company is also becoming increasingly profitable, and almost all its revenue comes from domestic sources. Meanwhile, Dynavax is sitting on a large cash hoard and has a large stock buyback program.
At the time of publication, Jensen was long DVAX and NEWT.
