Barron's: "The Coronavirus Crisis Has Made Whole Sectors of the Market Uninvestable"

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Barron's: "The Coronavirus Crisis Has Made Whole Sectors of the Market Uninvestable"

Excerpt from Barron’s quoting DataTrek’s Nick Colas:

…. “Nicholas Colas, co-founder of DataTrek Research, calls it the “stub-ification of U.S. equities.” He defines stub equities as those with “so many operational/financial overhangs that [their] value may be minimal/zero unless a lot of things go right.” The range of outcomes is huge: If things do go right, the upside to a heavily depressed stock can be immense, but there is also the possibility of it sinking deeper…

….The stubbiness of a stock can be exacerbated by high levels of debt, a low share price, and a lack of dividends or share buybacks, writes Colas. It’s a recipe for greater volatility than the broader market.

In normal circumstances, there may be a few members of the large-cap S&P 500 that could have some stub-like features. Boeing stock (ticker: BA) might have come close last year, as its fortunes depended heavily on whether it could fix the issues grounding its 737 MAX jet and return it to production. But in the current environment, writes Colas, entire sectors of the market could qualify as stub equities”….

Read the full article here in Barron’s!