What I Learned From Buffett Last Weekend…
Warren Buffett held his annual meeting last weekend, an event that’s become known as the “Woodstock of Capitalism.”
That name nicely captures the atmosphere of these large gatherings, which celebrate the success of the economic system that allowed Buffett to generate billions in profits for himself and his investors.
But this year wasn’t like Woodstock. Buffett spoke in an empty event center. The setting wasn’t a celebration of anything, in my opinion, and his comments also lacked a celebratory feeling. (You can watch the full event here, if you’re interested.)
Among the biggest stories was that Buffett sold the relatively large positions he had built up in airline stocks. He had been so bullish on the industry that he bought shares of all major companies.
At the meeting, he said,
“The world has changed for the airlines. And I don’t know how it’s changed, and I hope it corrects itself in a reasonably prompt way. … I don’t know if Americans have now changed their habits or will change their habits because of the extended period.
I think there are certain industries — and unfortunately, I think that the airline industry, among others — that are really hurt by a forced shutdown by events that are far beyond our control.”
As always, there’s a lot we can learn from Buffett’s actions. First, Buffett demonstrated the importance of selling when conditions change. Despite months of bullish comments, when the fundamentals changed, he acted. That’s an important lesson for all successful investors to remember.
We also learned that Buffett is actually bearish on the future of some industries, which is a sharp reversal from his attitude during the 2008 crisis. Back then, he wrote an article for The New York Times called “Buy American. I Am.“
The Oracle of Omaha is still generally optimistic, saying, “The American miracle, the American magic has always prevailed, and it will do so again.” But he didn’t have the passion he had in 2008. Instead, he said Berkshire was holding about $137 billion in cash as a hedge against “worst-case possibilities.” His newest goal for his holding company? “Our position will be to stay a Fort Knox.”
Optimistic, but very cautious.
How I’m Trading Right Now
I agree with Buffett’s position, and we will also continue practicing caution over at my premium service, Maximum Income. That’s why my most recent trade recommendation is a stable, boring company — Pfizer (NYSE: PFE).
Pfizer reported earnings last week. The most important part of the report was the fact that the company maintained its full-year profit guidance. More than half the companies that have reported so far this quarter have pulled their guidance because management doesn’t have visibility into customer demand, their supply chains, or other problems related to coronavirus.
Pfizer confirmed that revenue should be between $40.7 billion and $42.3 billion. Earnings per share, after adjustments, should be in the range of $2.25 per share to $2.35 per share.
As a drug company, PFE will do what it can to help combat the pandemic. The CEO noted, “We aim to leave no stone unturned as we explore every option to help provide society with a treatment or vaccine.”
Revenue and earnings will be driven by Ibrance, the company’s breast cancer treatment, and Xeljanz, a drug used to treat rheumatoid arthritis. Given the stability of these drugs’ sales, PFE should be able to hit its earnings projections. The stock trades for about 12 times next year’s projected earnings. That’s in line with the historical average forward price-to-earnings (P/E) ratio for the stock. PFE’s 10-year average is 12.5.
With earnings covering the dividend, PFE could become attractive to income investors whose buying could drive the market price well above fair value.
And while PFE’s dividend yield of nearly 4% is nice, my subscribers and I have a better plan…
Over at Maximum Income, we recently completed a trade to earn what I call “bonus dividends” from the stock. You see, rather than wait for the dividends to roll in, we can get paid now. It’s just another way we can protect ourselves in these uncertain times. Cash now is always better than cash later.
I can’t reveal the exact details of this trade out of fairness to my subscribers. But what I can say is that if you’re looking for safe ways to earn extra income in this market, you owe it to yourself to give it a shot. Check out this report to learn more.