David Alton Clark, founder of Clark Capital, with 25 years’ experience managing his own portfolio clearly understands the full cycle the market can take. He successfully navigated the 2000 and 2008 bubbles and subsequent crashes. Furthermore, Clark was one of few financial experts who called the COVID-19 crash advising investors to raise cash in late January when President Trump restricted travel from China. According to TipRanks, an investing platform that tracks and measures the performance of financial experts, Clark’s investment ideas have seen an average yearly return of 25.3% with a success rate of 70%. Therefore, it’s no surprise Clark has held down the #1 spot on TipRank’s Top 25 Financial Bloggers list for a majority of the previous decade.
Highlighting the recent unprecedented rip higher, Clark advises against chasing at this level. The extraordinary rally equates to a 50% retracement of the prior lightning fast 35% market crash. At 23 days, the market’s colossal waterfall cascade downward ranks as the fastest documented decline of this magnitude in history.
Clark states, “After an eleven year slumber a ferocious bear market has emerged from hibernation. Self-induced or not, a bearish barrage of economic indicators leaves no doubt we are now in an unprecedented recession. In effect, we’ve been vaulted ten years back in time. The 22 million jobs lost over the past month account for all the job gains since 2009. We have, for all intents and purposes, been thrust back into the Great Recession. Furthermore, the path ahead is fraught with utter uncertainty creating a treacherous trek forward for market participants. Nonetheless, it’s not all gloom and doom. Remember, it’s always darkest before the dawn. A panoply of positives lie ahead as well. The would-be upside catalysts include; declining COVID-19 infections, development of a vaccine/treatment, lifting of forced-shutdown protocols, and ultimately a return to some semblance of normalcy."
Based on the array of diametrically opposed outcomes, I posit volatility will continue to rule the day. Moreover, two unfavorable technical time bombs have come to fruition. First, strong resistance at the 50 and 200 Day SMAs lies overhead obfuscating the odds of added upside. Secondly, the dreaded Death Cross has been fulfilled. The Death Cross occurs when the 50 Day crosses convincingly below the 200 Day. Based on my extensive experience in the capital markets, I’ve come to know that more often than not this development foreshadows further downside. I advise waiting for a pullback prior to opening any new positions at this juncture.”
With this in mind, we asked the top financial blogger if he would share three stock picks he sees as budding buying opportunities on a pullback from present levels. Let’s take a closer look.
Noble Energy (NBL)
Noble is an independent oil and natural gas exploration and production company. The Company operates a high-quality portfolio of assets onshore in the United States and offshore in the Eastern Mediterranean and off the west coast of Africa.
Noble recently provided an update on actions the company is taking in response to the COVID-19 pandemic and significant decline in oil and gas demand and prices. David L. Stover, Noble Energy’s Chairman and CEO stated:
"Recent events have had an unprecedented and unpredictable impact on the global economy and the oil and gas industry. We are acting quickly and aggressively to confront today’s economic challenges with a focus on Noble Energy’s financial strength and to position the Company to improve shareholder value.”
The following is a list of actions Noble has taken in addition to previously communicated initiatives:
(1) Reduced planned capital expenditures for 2020. 2020 capital expenditures have been reduced 50% at the midpoint.
(2) Identified an additional $125 million in cash cost savings. These actions are anticipated to reduce cash outlay for 2020 by over $175 million versus original plan.
(3) Lowered executive leadership salaries by 10-20 percent and decreased cash retainer to directors by 25 percent through year-end 2020.
(4) Implemented employee furlough and part-time programs to align the Company’s workforce with near-term activity levels.
(5) Cash-settled certain 2020 crude oil hedges that had reached maximum value and added new downside oil hedge protection through the remainder of 2020.
(6) Ensured ample cash on hand by drawing $1 billion on the Company’s unsecured $4 billion revolving credit facility.
(7) Reduced the Company’s quarterly cash dividend to an annualized per share amount of $0.08.
The actions Noble has taken to date are expected to generate more than one billion dollars in annualized cash savings. Furthermore, Noble should benefit from a high-quality portfolio and strong capital discipline. As a contrarian investor, I am always looking to buy solid companies with sound prospects trading at a discount. There have been many boom and bust cycles in the oil patch. One thing I can say for certain is the seeds of the coming boom are planted during the current bust. 100% of the oil busts throughout history were followed by a subsequent boom. I posit the actions Noble has taken will ensure the long-term success of the business.
The stock is down 70% in the past quarter, yet up over 130% in the past month. By this time next year I posit the oil markets will have substantially recovered underpinning the stock. As always, reduce risk by layering into any new position over time. My 12-month price target is $14 providing 120% upside from current levels. (See NBL stock analysis on TipRanks)
DocuSign is an invaluable asset for me in my real estate business. The DocuSign product helps organizations connect and automate how corporations prepare, sign, act on, and manage agreements. As part of the DocuSign Agreement Cloud, DocuSign offers eSignature: the world's #1 way to sign electronically on practically any device, from almost anywhere, at any time.
Moreover, the COVID-19 pandemic has required a multitude of changes in the way businesses operate and how consumers purchase goods. I believe some things may never go back to the way they were previously. Once corporations realize the value, efficiency, and cost saving DocuSign provides, they will not revert back to face-to-face contract development and signings. This selection is a no-brainer in my book.
I see DocuSign continuing its upward trajectory and achieving my $150 price target within the next 12 months implying 50% upside from current levels. (See DocuSign stock analysis on TipRanks)
Toll Brothers, Inc. (TOL)
The real estate market is entering a period where there could be substantial devastation. Mortgage lending guidelines are being constantly updated making it considerably harder for homebuyers to obtain home loans or refinance. Buyers have backed off from purchasing concerned about the future and their jobs while sellers have pulled listings not wanting strangers walking through their homes.
The immense economic slowdown caused by the widespread pandemic will definitely impact the homebuilding industry. Mounting unemployment and deteriorating consumer confidence may cause many potential homebuyers to delay the purchases of homes. I expect new home sales to decline meaningfully in 2020. Nonetheless, by 2021 I foresee economic conditions stabilizing and the real estate industry recovering. At that time, Toll brothers will be well positioned to take advantage. Toll Brothers has taken several conservative actions amid the weakening environment. The homebuilder has substantially reduced land spend, paused share repurchases, and should have no issues maintaining excellent liquidity levels to ride out the storm.
Overall, my 12-month price target for Toll Brothers shares is $33, implying over 65% upside from present levels. (See Toll Brothers stock analysis on TipRanks)
We are not out of the woods yet folks. Moreover, we are banging up against strong resistance after a rip-roaring rally off the lows. Reduce risk by waiting for a pullback or for the rally to break through resistance prior to putting new money to work. Bear markets tend to unfold in three major phases. The first is a massive selloff overshooting to the downside. Then the proverbial dead cat bounce as investors buy up seeming bargains created by the carnage. An eventual drift downward normally occurs as reality sets in that things are different now. The first two phases of this bear market have occurred in a fast and furious fashion. It is still in its infancy. There will be plenty of time to pick up shares in the coming months at a discount. Be patient, build new positions slowly. “Patience equals profits” is my #1 wealth building principle.
Disclosure: As of this writing, David Alton Clark doesn't hold a position in any of the mentioned securities.
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