A Turnaround Story Fifty Nifty Years in the Making
Investors of a certain age are familiar with the term “Nifty Fifty.” It came into vogue during the 1960s to describe a shortlist of large-cap stocks that were considered sure bets. The list included still current household names such as McDonald’s (NYSE: MCD), Johnson & Johnson (NYSE: JNJ), and Walmart (NYSE: WMT).
Last week, two other names from the original Nifty Fifty list made announcements that reminded me of how much times have changed. On July 28, Eastman Kodak (NYSE: KODK) revealed it will receive a $765 million loan from the U.S. government to produce pharmaceuticals to be used in the development of a vaccine for COVID-19.
That day, KODK tripled in value. That’s the good news. The bad news is the rise brought it up to $8, about half its value four years ago. Kodak now has a market cap up to $350 million. That moves it out of microcap status, which is generally regarded as the stock market’s equivalent of a casino.
The following day, General Electric (NYSE: GE) reported a Q2 loss of $2.1 billion. That’s the bad news. The good news is its top-line revenue fell by “only” 24% during the quarter, less than Wall Street feared. That morning, shares of GE crested above $7, less than a fourth of its value four years ago.
General Electric’s demise is not surprising. GE’s biggest revenue generator is its aviation division, which makes jet engines and electrical systems for commercial and military aircraft. The coronavirus pandemic reduced domestic air travel by nearly 90% during the second quarter. GE also owns a $6 billion equity stake in oil services company Baker Hughes (NYSE: BKR). The company announced that it will sell those shares over the next three years to raise cash.
Jumping the Curb
You may have noticed that all of the stocks mentioned in the previous paragraph are listed on “The Street,” better known as the New York Stock Exchange (NYSE). Its only competitor at the time, the American Stock Exchange (ASE), was derisively referred to as “The Curb.” The ASE was long regarded as the province of penny stock hucksters looking to take advantage of unwary investors.
The NASDAQ stock exchange was formed in 1971 to give smaller companies an opportunity to raise money outside the long shadow of the NYSE. It was the first electronic exchange, using mainframe computers to match buy and sell orders. At the time, it was dismissed as a fad that would eventually wither and die.
Of course, that’s not what happened. In fact, just the opposite has occurred. A current list of the “Nifty Fifty” would be comprised mostly of NASDAQ stocks. The five most valuable publicly traded companies in the world — Apple (NSDQ: AAPL), Microsoft (NSDQ: MSFT), Amazon.com (NSDQ: AMZN), Alphabet (NSDQ: GOOGL), and Facebook (NSDQ: FB) — are all listed on NASDAQ.
These days, it is a NASDAQ listing that confers credibility to a company. During the first half of this year, five companies transferred their stock exchange listings to NASDAQ. In addition, 69 companies hosted their initial public offerings (IPOs) on NASDAQ. In fact, 77% of all IPO proceeds raised during the first half of this year occurred on NASDAQ.
To a large degree, the emerging dominance of NASDAQ reflects investors’ unquenching thirst for tech stocks. The traditional industrial and financial stocks that populate the NYSE are out of vogue. They are no longer in demand and their recent performance reflects their subservient status.
Making a U-Turn
I can’t help but wonder if another 50-year cycle is about to begin. If so, it may be the beaten-down stocks on the NYSE that rotate back to the top. Certainly, many of them are starting from a much lower price point.
Unfortunately, I won’t be alive in 50 years to know if I am right. But I do know a way to participate in such a reversal if one occurs in the near term. The Vesper U.S. Large Cap Short-Term Reversal Strategy ETF (UTRN) uses a proprietary algorithm to identify the 25 most oversold stocks in the S&P 500 Index.
The fund rebalances its portfolio weekly. As of last week, its top five holdings were Kimberly-Clark (NYSE: KMB), Realty Income (NYSE: O), Colgate-Palmolive (NYSE: CL), Conagra Brands (NYSE: CAG), and Procter & Gamble (NYSE: PG). Not to beat a dead horse, but you will notice that all of them are listed on the NYSE.
This fund’s algorithm appears to be working pretty well. Through the end of July, UTRN posted a slight gain for the year despite owning what nobody else wants. Since bottoming out below $17 on March 23, UTRN has rallied 76%.
A better way…
As good as those returns are, I know of a way you can do much better without guessing which way the market might turn next. It involves a trading system developed by my colleague, Jim Fink.
A renowned options expert, Jim Fink is the chief investment strategist of our premium service Velocity Trader. Jim has developed a scientific way to quickly and predictably multiply the gains of regular stocks.
Called the Velocity Profit Multiplier (VPM), Jim’s proprietary investing method allows you to jump into trades with complete confidence because you know that when share prices move in the right direction, VPM will exponentially boost your returns in less than a month.
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