Reader Q&A: Letters from Lockdown

My email inbox receives a lot of dispatches during quarantine. 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 weeks, 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.

Read This Story: Pandemic Plays: All Eyes on Health Services

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.

One fast-growing health care segment now is cannabis-related biotechnology. For our latest presentation on the most promising pot stocks, click here.

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. Oil prices have recovered somewhat, but they have a long way to go.

Read This Story: Energy: Understanding a Sector In Flux

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 are less meaningful for consumers when they’re spending more time at home because of the pandemic.

This pandemic seems destined to transform our world in myriad ways. Some of those ways involve permanently lower oil demand. We’re 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 as low energy prices persist, even the midstreams are witnessing eroding financials.

In addition to getting clobbered by low oil prices, master limited partnerships (MLPs) are under siege because of recent legal and regulatory changes.

Read This Story: Sunset for the MLP Structure?

However, 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. For our list of high-quality, high-dividend utilities stocks, visit this link.

A multiyear trend with momentum…

“Can you pinpoint for me a long-term trend that’s a safe and sure bet?” — Darrell N.

Yes, meeting that criteria is the roll-out of 5G, the next generation of wireless technology. 5G will pave the way for a new wave of technological advancement, which explains why so many companies both large and small are jumping onto the 5G bandwagon.

Read This Story: 5G: The Fight for the Future

The existing standard of 4G accelerated the smartphone boom by allowing a single device to handle a multitude of functions. But 5G’s reach will extend far beyond phones.

5G will facilitate the Internet of Things by allowing several interconnected electronic devices and machines to communicate with each other instantaneously at ultra-fast speeds.

The spread of 5G continues apace. On August 26, wireless coverage mapping company Open Signal released a new analysis of 5G download speeds in various countries (the data was gathered between May 16 and August 14).

Open Signal found that the wealthy kingdom of Saudi Arabia has the fastest average download speeds of any country at 414.2 Mbps (megabits per second), more than 14 times faster than its 4G network. This ultra-fast speed is an indication of how 5G will shake up our world (see chart).

5G adoption enjoys a multi-year upward trajectory. Regardless of the pandemic or economic ups and downs, the momentum of 5G can’t be stopped. That spells opportunity for the shareholders of the chipmakers, telecoms, systems builders, and device makers that benefit from lightning quick connectivity. For a well-positioned 5G investment play, read our special report.

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. Gold futures on Monday rose $3.70, or 0.2%, to settle at $1,978.60 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 and socio-political tensions are whipsawing investors, but these conditions are manna for the Midas metal.

Gold deserves a place in your portfolio. A general rule of thumb is that 5%-10% of your assets should be in precious metals such as gold. The yellow metal’s appeal will grow, as volatility intensifies.

Watch This Video: Video Update: Vexed by The Vex

During the Great Recession of 2007-09, gold prices rallied from $840/oz at the end of 2007 to surpass $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’s even more severe than the last one. What’s more, the Federal Reserve announced a dovish policy change last week that could pave the way for greater inflation, which in turn should fuel demand for gold.

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.

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John Persinos is the editorial director of Investing Daily.