Seasonality Stocks Struggle at Month End

Cyclical Stocks

Auto Stocks and US Steel Buying Opportunities

Earlier in the Market Wrap section, we discuss that some sectors have had sharp sell-offs as a result of the coronavirus lockdown. Cruise liners stocks were decimated. These stocks do not pay US taxes and therefore were left out of the stimulus bill. Airlines are another sector that has dropped sharply lower. This sector is worth a look; it was one of the sectors that was mentioned in the fiscal stimulus package, however, it's still not clear what type of financial support will be employed. The biggest potential downside for these two sectors is the length of time it will take for consumers to return to the airliners, or especially the cruise lines, and at what percentage of participation compared to earlier numbers. The last time airlines went through a period like this one (9/11), it took airline stocks 3 - 4 years to regain their value.

On the other hand, shortly after 9/11, auto stocks did well and they were the second best performing sector in 2001, finishing only behind gold, and were the 7th best performing sector during 2002. There were two reasons for the outperformance: this was first

time 0% auto loans were introduced, and people wanted to find means of travel other than airlines. Although we have been living in an artificially low interest world for the last 20 years, zero percent auto loans are nothing new, and it may be some time before individuals will want to enthusiastically return to the cramped quarters of air travel. No social distancing on those planes.

So let's a take a look at the stocks of GM, Ford and perennial loser US Steel.

In normal years GM and Ford stock will trade in a 40% trading range, 20% above and below their average stock prices. This year the trading range is much wider. If one goes back 12 months it will provide a picture of the volatility this year. From this data and our traditional buy and sell dates we can calculate good entry and exit points.

Let's start with Ford. Along with the sell-off because of the coronavirus, over the last 12 months Ford missed earning estimates during the 2nd and 4th quarters and it suspended its dividend. In a survey of 20 analysts, 4 rated the stock a buy, 16 had it a hold and 2 rated it as

Copyright ? 1997 Educational Investor Services. All rights reserved

underperform. Not a stellar economic report.

Using data over the last 12months, trying to establish an entry point and sell point provides the following information. A good entry point for Ford stock would be $4.90, and the stock is currently trading below this level. A good sell price would be $8.40/share. Normally with Auto stocks we also list sell dates along with sell prices. With the cycle being out of sink this year, instead of selling on the traditional date of May15th we will extend that date one year.

To reiterate, Ford is trading below its entry point, so for those who do not own the stock now it would be an opportune time to buy it. For those buying the stock and those who already who own the stock, you should sell Ford if it hits $8.40 or May 15, 2021, whichever comes first.

GM has somewhat more favorable economic numbers. GM was able to beat earnings estimates each quarter last year and continues to pay its dividend, which currently is about 7.8%. A survey of 20 analysts showed that 2 rated the stock a strong buy, 7 rated the stock a buy, 9 had it a hold and 2 rated it as underperform.

Using the last 12 months of data, a good entry point for GM is $21.60 and an appropriate selling price is $34.78. As for sell dates the traditional sell date for GM stock is June 30th. With the cycle being out of sink, instead of selling on the traditional date of June 30th we will extend that date one year.

To reiterate, GM is trading below its entry point, so for those who do not own the stock now would be a reasonable time to buy it. For those buying the stock now and those who currently own the stock, you should sell GM if it hits $34.68 or June 30th 2021, whichever comes first. One more note about GM: with a dividend of 7.8%, GM stock could decline this amount and you would still be breaking even. This fact makes GM a better buy than Ford at this time.

Like the cruise stocks, US Steel (X) has also been decimated. Over the last 12 months the news for US steel stock has been as bad as one could expect considering the large sell-off in the stock. US Steel was able to beat earnings estimates each quarter last year, but there was still no response from the stock. U.S. Steel Chief Executive David B. Burritt said the first quarter of 2020 will be "the trough for the year," due to the seasonality of its mining

Copyright ? 1997 Educational Investor Services. All rights reserved

operations and lower first-quarter shipments in some of its products. "We were pleased to deliver better than expected results to end 2019 and are excited to turn the page to 2020 where we will continue to transition the business towards our future," Burritt said.

Clearly that isn't happening as the company has been totally engulfed by the coronavirus. Following X stock strategy, the stock is purchased the day after 3rd quarter earnings (late October) and held until the end of April 1st.

X was trading at $10.94 at the end at of October last year. On April 1st

(yesterday as we write this) the stock closed at $6.39. Clearly the coronavirus knocked this stock off its seasonal pattern. At one point X was trading at just under $5.00/share -- its lowest price in history!

The stock has battled back from its low but is still down 40% from its purchase price. Instead of selling this stock at such a loss, EIS recommends to continue hold until April 1st 2021. I can't imagine that the coronavirus will not be behind us by that date.

Copyright ? 1997 Educational Investor Services. All rights reserved

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