By John Persinos
My email inbox received a lot of reader correspondence over the past few days. Below, I answer a representative sampling. But first, have you ever wondered about the biology behind email?
Emails and texts stimulate the brain's dopamine, a neurotransmitter (i.e., chemical messenger) that compels you to desire and search. Dopamine increases your goal-directed behavior...for food, sex, drugs, money, whatever. Once you actually attain the object of your desire, the brain's opioid system rewards you with a feeling of pleasure.
That's why you get a small thrill from the "ping" of a received text or email on your device: it's all part of the dopamine-opioid loop. This loop is intensified by coronavirus-induced isolation.
Another neurochemical kick, of course, is when you profit on an investment. So let's get to it.
Be wary of biotech long shots…
"In your opinion, which company will be the first to deliver a coronavirus vaccine?" - Lila S.
Be careful trying to make investment bets on companies that might make a coronavirus vaccine. The odds of picking a winner are low, and even if you do pick a winner, the odds of making a lot of money are low, too. In recent days, we've seen hopes about a new vaccine wax and wane.
It can take years and considerable amounts of money to get a drug treatment to the public. When investing in the biotech sector, go with companies that have at least one drug on the market that's generating profits.
That said, we like major health services stocks now. Established medical and drug providers typically enjoy strong cash flow, rock solid balance sheets, and long histories of earnings and revenue growth. They're "essential services" plays that are recession-resistant.
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With the public's focus on health services because of the coronavirus, beaten-down health and drug stocks are poised to rise. The world can do without another coffee shop or a faster smartphone. But none of us can do without medical care, especially in the midst of a global pandemic.
Oil's not well…
"What are your current thoughts on the trajectory of energy prices and the stock prices of energy companies in the next couple of months?" - Charles R.
Energy demand and oil prices will remain depressed into the foreseeable future. When oil consumption plummeted during the 2008-2009 financial crisis, it bounced back strongly in 2010. This time around, I doubt the pattern will repeat itself.
Read This Story: Sunset in the Energy Patch?
Balance sheets in the energy sector are loaded with debt but margins are shrinking. When the oil industry goes bust, the broader stock market often suffers collateral damage.
To be sure, lower energy prices benefit consumers and temporarily help companies that rely on oil inputs. But if energy prices get too low, it signals decreased demand and a slowing economy, which in turn spooks investors. And let's face it: lower gasoline prices aren't much good when quarantined consumers can't drive anywhere.
This pandemic seems destined to transform our world in myriad ways. Some of those ways involve permanently lower oil demand. We could be witnessing an inflection point for the fossil fuel industry.
The midstream sector (transportation, storage, and wholesale marketing) should be more insulated from oil price volatility, but that sector has been dragged down by the crash in crude oil prices. The midstream sector currently features value plays, but if this bear market in energy drags on, even the midstreams will witness eroding financials.
If we define "energy" more broadly than the S&P 500 classifications, the renewables sub-sector demonstrates long-term appeal. Companies that produce and install products such as solar panels, photovoltaic cells, and wind turbines, as well as utilities that are migrating in the direction of renewables, are poised to outperform in the years ahead.
The infrastructure for the solar industry has grown pervasive and entrenched, leading to a "price decoupling" of solar and fossil fuels. Solar and other renewable energies are now part of the energy status quo and no longer need high oil and gas prices to attract users.
The golden rule…
"Thank you for your insightful articles. What is your current view on gold and gold stocks?" -Henry P.
Gold is a proven safe haven during tumultuous times. The current price of gold (as of market close April 23) is $1,732.80 per ounce. As you can see from the following chart, gold has enjoyed a big run-up in prices:
I believe that gold has further to run, as investing anxieties intensify. The pandemic is clobbering financial markets and the economy, but these conditions are manna for the Midas metal.
Gold deserves a place in your portfolio, especially during this pandemic. A general rule of thumb is that 5%-10% of your assets should be in precious metals such as gold.
Read This Story: Your Investment Survival Guide for the Pandemic
The yellow metal is proven protection against crises. During the Great Recession of 2007-09, gold prices rallied from $840 per ounce at the end of 2007 to over $1,200/oz by the end of 2008, even though inflation over this period stayed in check. We're now mired in a virus-induced recession that could become even more severe than the last one.
Looking for a well-positioned gold investment? My colleagues at Investing Daily have pinpointed an under-the-radar, small-cap gold miner that Wall Street is ignoring. This play on gold could hand you exponential gains…if you act now. Click here for details.
Questions or comments? I welcome reader correspondence: mailbag@investingdaily.com.
John Persinos is the editorial director of Investing Daily.
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