Don’t underestimate the profound impact that fear and greed can have on you as an investor. And, unfortunately, both emotions tend to work “their magic” at the worst times. Greed getting you in when prices are high and fear forcing you out after painful declines. In fact, when it comes to investing, sometimes just sticking around and doing a whole lot of nothing is the best call. Which is why you might want to take a look at this quartet …
Oil pain
When oil prices were soaring, investors willingly jumped into the market. Things were so good that many were enticed into companies that, in hindsight, have turned out to be highly risky, and financially costly, investments.
What if, instead, you owned an industry stalwart like ExxonMobil (NYSE: XOM)? Sure, you’d expect the oil price decline that started in mid-2014 to hurt. But you could be pretty confident that it wouldn’t lead to a near death experience. To give you an idea of the difference, look at troubled Linn Energy’s unit price, down nearly 99% since oil prices started to fall, and compare it to Exxon, which is down just 16% or so.
Moreover, Exxon happens to be one of the best run oil companies in the world, with its return on invested capital routinely besting peers. And financially speaking it’s a rock. In fact, as other oil companies have faced credit downgrades of late, Exxon’s AAA credit rating has yet to be cut. Dividends, meanwhile, have continued higher despite the industry turmoil. If you are looking for a rock in a storm, Exxon is one that you can hang on to.
Steeling yourself
Another name you might want to look at is Nucor (NYSE:NUE). This U.S. steel giant has been hit by an industry downturn that started way back during the 2007 to 2009 recession, just like every one of its competitors. But unlike competitors, it’s managed to hold up really well. For example, Nucor lost money in 2009, but has been in the black every year since while competitors have been bleeding red ink.
Nucor’s strength comes from a couple of different sources. For starters, it uses electric arc furnaces. They are generally cheaper and more flexible than the blast furnaces that make up the backbone of many competitors. But there’s also the fact that Nucor’s pay structure is designed to reward employees when times are good and trim compensation when times are bad — which is a huge benefit during the lean years.
Add to this information the fact that Nucor has a long history of investing during downturns to strengthen its business, so it comes out the other side a stronger company, and the appeal gets even greater. For example, Nucor has been building new plants and selectively buying others, such as the 2014 buy of Gallatin Steel, during the downturn.
And, just for reference, since 2007, Nucor’s stock is down a touch under 13% compared to a struggling competitor like AK Steel, which is down about 75%. Big difference, but that type of stability can keep you in the game when others are running for the hills. Nucor’s over 40 year history of annual dividend hikes doesn’t hurt, either.
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