The Y2K debate has spiced up an otherwise trendless few months, but it hasn't generated many specific ideas. So I called some of the people whose job it is to make money off the big event and came up with the following strategies:
Talk about Y2K on our message boards.
Y2K is yesterday's news, says Ken Fisher, president of
columnist. "Today's market isn't dealing with today; it's dealing with something off in the middle of next year. ... The people who are worried about which stocks are going to get killed by Y2K have already taken their money out. Who's going to wait until Dec. 20 to take their money out?"
"I'm not saying that there won't be Main Street problems," he continues, "but you have to separate them from Wall Street problems. Every few years, we have a massive hurricane that does $20 billion of damage, but it doesn't buckle the market. ... Markets have big, broad, rolling tops, not spikes. They don't just fall through the floor. We've run out of time for a big bust between now and the end of the year."
As for what to buy, "there are times when size alone is a return determinant, and this is one of them." That points to
and the other 22 or so giants with the wherewithal to exploit the global market.
He also likes the major European telecom and banking stocks such as
. At the other end of the spectrum, beware of the dot-coms: "Internet stocks are a bubble which will burst and possibly be the cause of a general market correction in 1999."
John Mauldin, founding partner of
and author of
How to Profit from the Y2K Recession
, says the upbeat news pouring out of government and company public relations departments is hiding a much darker reality.
"I'm hearing off-the-record stories that you would not believe. ... Get
corporate executives late at night with five scotches in 'em and they'll tell you, 'We're screwed. We have so many supply problems that aren't going to get dealt with, there's just no way.'" Mauldin expects a recession next year, in which the biggest problems are overseas.
That makes long-term Treasuries an obvious choice. For his more aggressive clients, he also likes
LEAPS puts, long-term options designed to go up if the market goes down. (See this
Options Forum story for LEAPS basics.) "If the market only drops 10% or 15%, they become very profitable, and if we do have a recession they become extremely profitable. We're talking 300% to 500% returns," Mauldin says.
When pressed (hard) for specific long/short combinations, he gives up a few names, with the caveat, "I don't think there's reason to be buying anything, since in a recession just about all stocks go down. But if you insist on putting long positions against shorts, you could buy
British Air simply flies to the wrong places, many of the countries that refuse to post their Y2K status. Southwest Air has no foreign exposure."
Both will go down in a recession, but British Air should go down more, earning you the difference with only minimal risk.
Another possibility is to buy GM and short
, the big auto-parts maker. Both are in a vulnerable business, but if hard times overseas cause a stampede into U.S. securities, "the 'Nifty 30,' the companies that people around the world know," will hold up better than most, Mauldin says. So General Motors, which is a household name, will outperform Lear, which isn't.
Or just short companies with big international exposure. Packaging firm
Crown Cork & Seal
, for instance, is "a bad company that gets 175% of its profits from foreign operations," Mauldin says. "And do you want to own
if all these countries who buy planes take a hit?"
, meanwhile, "has too much exposure to too many of the wrong places."
Make It One of Many Considerations
Martin Weiss, chairman of
, has made a name for himself by rating the financial strength of banks and insurance companies. This year he branched out into Y2K by going through companies'
Securities and Exchange Commission
- The evolution of their Y2K budget over time. "If the budget is increasing dramatically, it indicates that they previously underestimated the scope of the problem," Weiss says.
The percentage of the budget that they've spent so far.
How they're doing compared to other companies in their industry.
Stir the three together, and you get a rating for Y2K preparedness. "If it's low or below average, that's a potential candidate for trouble," Weiss says.
Before we name names, Weiss insists on a disclaimer: "Y2K is only one of the fundamental factors in picking stocks. So choose your shorts and longs from this list by considering other things like valuation and momentum." A good way to use his firm's rankings, he says, is to focus on weak sectors, buying and/or selling a basket of related stocks or options.
Based on their midyear disclosures, many companies in the telecom, pipeline, airline and drug industries are doing less than they should. Big names with unfavorable ranks include
. Lear and
also get low marks, which you should note if you're considering the long/short strategies in the previous section.
Interestingly, most of the large companies in industries that everyone used to worry about, such as utilities and banks, are in far better shape, Weiss says. So are the semiconductors and railroads. Top-rated companies include
. For more names, visit Weiss' site at
John Rubino, a former equity and bond analyst, writes a column on mutual funds for POV and is a frequent contributor to Individual Investor, Your Money and Consumers Digest. His first book, Main Street, Not Wall Street, was published by William Morrow in 1998. At time of publication, he had no position in any stocks mentioned. While Rubino cannot provide investment advice or recommendations, he invites your feedback at
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