When asset markets crash, or economies go into recession, there is always opportunity to profit for the nimble investor who knows what the best stocks to buy now, at that time, are. In January 2021, I decided to start and look for some of these opportunities. My thought was; there are a lot of companies & assets that haven’t been able to recover from the hardships of the COVID pandemic.
I always have cash sitting in fixed income assets (paying very little) waiting for when these limited opportunities present themselves, so I can pick up depressed assets and attempt profit from their comeback.
I decided to look for assets that had yet to recover from the pandemic crash. Who’s prices were high before March 2020, but had yet to recover for one reason or another. Trying to figure out the best stocks to buy now and take advantage of the decline, but hopefully now while they were still going down.
My thought was to search for assets listed in the US market in USD, as I believe the US markets have the best chance of recovering faster considering all of the money the Fed has pumped in to them. Note my understanding is that all of the following stocks & funds can be purchased by UK & European residents as the funds are REITs, not ETF’s.
My research led me to this line of thinking:
Commercial Real Estate – Best Stocks to Buy Now?
Part of the Growth Portfolio I have invested in for over 30 years has REITs in it. These were hit exceptionally hard when COVID hit, some losing as much as 50% of their value. Unfortunately, with the lockdowns & shutting down of the economy, commercial real estate (most REITs contain this in one manner or another) is still getting killed as companies are unable to pay rent, or employees are working from home and rented office blocks are going up for sale.
I’m a big fan or REITs, I think they’re a lot easier to deal with than buying physical real estate assets myself. And they are some of the best dividend stocks to buy. I also believe that once this pandemic is over, REITs will return with a vengeance as commercial real estate is always going to be needed one way or another.
So with that in mind, I decided to look at this asset class to see if there was any opportunity. I found 6 different REITs that were still depressed (3 of them I already own in my Growth Portfolio), but had a strong volume history, high value of assets under management, and also paid good dividends (which REITs in general tend to do, up to 4% or more, one of the best dividend stocks to buy by far).
I thought these would be some of the best stocks to buy now (or funds, technically), while they are still hurting from the pandemic. I decided to put 1/3rd of my allocated funds for this portfolio in to REITs. I really don’t mind if it takes a while for these assets to come back as I’m getting paid around 4% dividends just for holding them. As you can see in the chart below, the REITs I chose were still down quite a bit.
Oil – The Black Gold
Oil has had a bad time lately, and really got hammered in March 2020 when the pandemic hit. In my mind, we’re going to be using oil on this planet in large quantities for the foreseeable future, at least for my lifetime. Even though there is a big push for renewable energy, oil is used for so many things from manufacturing plastics to freight & air travel. It’s used to power airplanes, trains, trucks which carry our goods all over the planet, it still powers most vehicles.
Oil is used to generate electricity, and heat homes. Oil is used to make so many items we use daily there is not enough room to list them all here. No way is that changing anytime soon. So I think oil company stocks would be some good stocks to buy now, especially as these are also some of the best dividend stocks to buy.
I decided I would buy companies which use oil in one way or another to make their business. I chose 7 oil company stocks which were depressed, but again profitable companies with lots of cash and large market caps. I put 1/3rd of my portfolio in to these companies. Oil stocks pay very great dividends, as much as 8% in some cases. So again, definitely some of the best dividend stocks to buy. I can afford to hold them for a long time if necessary and get paid for doing so.
See below how oil stocks got hammered when the pandemic started. Cutting up to 50% off of their value. After doing my research, the companies outlined below are some of the best stocks to buy now in oil in my opinion. So these are what I bought:
Some of these individual oil companies had been hit so hard by the pandemic
Value stocks are stocks of companies that are generally doing well, are profitable, and are typically large, old, well known organizations. Again, value stocks are some of the best dividend stocks to buy and hold.
I looked for value stocks that had either been unaffected by the pandemic, or had been hammered and were yet to return to their average price. I found 8 companies that I liked the look of for various reasons, and I think are the best value stocks to buy now not having fully recovered from the pandemic yet.
All are large, well known, profitable concerns, and again most (not all in this case) pay a decent dividend (up to 4%). I decided to put 1/3rd of my recovery portfolio into value stocks. As you can see below, the value stocks I chose have recovered some from the COVID crash, but only about 50%.
I wanted to see if these companies I had been researching were the best stocks to buy now for 2021 high growth. I plugged all of the numbers from all 3 asset types in to Portfolio Visualizer to see how a portfolio of these new assets would have faired in the past. It didn’t look bad at all.
As you can see below in the backtest results, from Jan 2013 (the earliest I could test because of Phillips66 history) to the beginning of January 2021, it had a annual (inflation adjusted) return (CGAR) of 8.77%, which is right on par with my other portfolios (just as a side note, if you test only up to the end of 2019, before the pandemic, the CAGR was 13.87% for the proceeding years).
The scary part of course are the drawdowns (when everything goes down at once), as you can see the major drawdown in this backtest was in 2020 because of the pandemic. BUT, we were still close to the bottom of that drawdown, so perhaps (I thought) this is a good time to get in, after all, if it’s already drawn down almost 35%, how much lower can it go?
Answer = “a lot”, however buying when it’s down that much already does offer some benefit over buying the highs. Especially when you take into consideration my reasoning for buying each individual asset. Either way, I decided that, based on my research, these are the best stocks to buy now for a potential of 50% growth when things recover.
Tracking Portfolio Returns
I initiated this new portfolio (bought all stocks) on January 7th, 2021. As it’s still so new, there is not yet enough data to create Google charts to display like the other portfolios. So for now, I’ll just insert a screen shot of the portfolio from my brokerage so you can see on there how it’s doing. Once we get a few months of data, I’ll start the same portfolio tracking as I do for the other portfolios.
As you can see, so far I’m quite happy with the investment choices. As of today (25 Feb, 2021) The portfolio is already up over 13% in a little over a month. We’ll see how it does over time. This is a portfolio I’ll keep long-term (or until it makes sense to sell it) as it has shown good returns historically before the pandemic.
This is an “all stock security” portfolio, which is a very aggressive investment strategy. Typically we would buy bonds to balance the portfolio & offset any potential market crash. In my case I already have a lot of fixed income investments, plus I feel that most of these assets are already depressed, so the downside risk is less than if they were at a normal level. On top of that, bonds are still in a major freefall for the time being so I’m waiting to see what happens before I decide to buy any more of those, if I do.
Click on the image to see it full size
I added the Recovery Portfolio (couldn’t think of anything else to call it) to the “Investment Portfolios” page, and we’ll see how it does going forward. Let’s see if my thinking of “these are the best stocks to buy now in order to invest in distressed assets” pays off, or costs me an arm and a leg 🙂
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As I buy & sell assets, & rebalance portfolios often, not all investment data can be deemed as accurate all of the time. Some of it is used for tracking purposes only and quote & position data is imported from quote services & portfolios that we cannot guarantee the accuracy of. Read our full disclaimer for further information.