During the first half of 2021, stocks climbed higher in a very linear fashion. It was a great time to watch your investment account balances, but not so good if you like to “buy the dip,” since there never seemed to be a dip. Now in the waning days of summer, fears of a broader spread of the delta variant of the coronavirus that causes COVID-19 have investors worried about a repeat of the 2020 economic challenges. For me, these fears provide investment opportunities.
During my freshman (doolie) year at the Air Force Academy, we had a mandatory formation to watch the 1964 movie Dr. Strangelove. The movie is about a psychopathic Air Force general who orders a first-strike nuclear attack on the Soviet Union. (Yes, in the 1970s, this was mandatory viewing at the Air Force Academy!)
I’m thinking about the movie now because the Dr. Strangelove subtitle—“How I Learned to Stop Worrying and Love the Bomb”—seems relevant to the delta variant, too.
I think investors can apply this theme to the stocks and fears about the delta variant. It is improbable that this current virus strain will take us back into complete economic lockdown conditions. It is doubtful that the variant will even have a meaningful impact on economic activity. The fears of this happening, however, may lead to attractive investment opportunities.
For example, when Wall Street analysts predicted lower energy consumption in China due to pandemic-triggered restrictions, the price of a barrel of WTI crude quickly dropped from close to $75 to a bottom of $10 lower. The drop in oil price triggered a sell-off in the energy sector, giving forward-thinking investors a buying opportunity.
I like energy midstream for stable earnings and dividend payments. That stability does not stop share values in the sector from dropping along with the rest of the energy space. One favorite, ONEOK, Inc. (OKE), tumbled by 13% with the drop in crude, even though ONEOK is a natural gas midstream company, not even related to crude oil. Still, even at the low of its dip, OKE shares yielded a very attractive 7.5%.
I am sure you can think of other sectors that may drop on expanded delta fears. Off the top of my head, I think of airlines, lodging and hotel REITs, and shopping mall REITs. (Yes, I am an income-focused investor). When these categories experience a fear-driven drop, I will be a “stop worrying and love the delta” buyer.
I believe that the delta variant will not have the negative economic effect feared by investors and analysts. I am very optimistic about the resilience of the people of the U.S. and their desire to get back to lives that look more like a pre-pandemic normal.
As a final note, I was a single-seat fighter, nuke qualified in the 1980s. It was a very strange experience. I have some great stories to share over a good single-malt whisky.
