The past three weeks have been the most volatile period that most investors have ever experienced. We have seen stocks lose -- then regain -- then lose again -- more value in a shorter period of time than at any other point in the past three decades.
Here's some crazy context. In the crash during the 2007-2009 Global Financial Crisis, the S&P 500 peaked in October 2007 and fell 29% over the next year, reaching that mark in 358 days. The same 29% decline happened in 26 days from late February through mid-March.
To some extent it makes sense. The potential implications of the COVID-19 pandemic to sicken millions of people and bring the global economy to a halt became apparent far more quickly than we realized how broken the banking system was a dozen years ago.
But even with all the uncertainty and very real risks of global recession as millions of people go into isolation and major industries close down, now is one of the best times to buy stocks we have seen in more than a decade. I've taken advantage, buying shares of Brookfield Infrastructure Partners (BIP -0.52%), CareTrust REIT, Inc (CTRE 0.09%), and Bank of N.T. Butterfield & Son (NTB 0.64%).
If prices stay down, I'll buy more.
A bank worth buying at twice the price
Butterfield isn't a household name, since it operates in Bermuda, the Cayman Islands, and the Channel Islands off the coast of Europe. Its core customers are largely high-wealth individuals and businesses, and its management has done a great job building a secure, and well-run business.
And yes, like most other banks, the massive reduction in interest rates we have seen as the coronavirus crisis has played out will hit its bottom line, and a likely global recession could reduce demand for new loans for the foreseeable future.
But the market is pricing it for absolute calamity, with the stock down more than half at this writing. I think that's an incredible bargain, maybe even more than other banks since Butterfield counts on fees for a bigger portion of its income than many others. As CFO Michael Schrum put it on the fourth quarter earnings call, "...fee income as a percentage of Butterfield's total revenues ... is a positive differentiator relative to U.S. retail banking peers."
Butterfield's earnings may fall in 2020 as recession hits, but its fee-based income, along with trillions of dollars moving out of other assets and into cash, could play to its advantage. Investors who buy at recent prices could see their investment double quickly when things return to normal over the next year.
A perfect business to own in a recession
It's been hard for me to not buy more of Brookfield Infrastructure in recent weeks, because it makes almost no sense that shares in this wonderful business have fallen so sharply. At this writing, Brookfield Infrastructure has lost almost 40% of its value during the market crash.
The reason why those selling are making a big mistake, and why investors would be smart to back up the truck on this business is that it owns and operates the infrastructure people and businesses will continue to depend on during anything short of a full-on zombie apocalypse: water systems, electricity and natural gas transmission, telecommunications, ports, and others.
These aren't sexy businesses to own, but they're indispensable across the economic cycle. Things may be scary out there, but the water and energy will continue to flow.
That's not to say Brookfield Infrastructure won't feel any impact. The global economy is braking hard to contain the coronavirus pandemic, and there will likely be reduced demand for even critical infrastructure. But while other businesses are closing their doors -- many permanently -- Brookfield Infrastructure will feel a smaller hit, and should emerge on the other end just as relevant as ever.
Investors who buy at recent prices would see a 60% gain if shares just return to their pre-crash highs once things calm down. Brookfield's long-term track record of growth indicates that could be a very low bar for investors who buy now and hold for the long term.
Protecting an at-risk group with big growth to come
CareTrust owns skilled nursing facilities and housing for seniors. With COVID-19 causing much higher rates of death for seniors, the company's stock has been very hard-hit as investors moved it into a high-risk bucket. At one point, shares cratered by almost 66% in less than four weeks.
A massive surge on March 19 -- shares gained more than 50% back -- helped ease the losses, but at this writing, CareTrust stock is still down by almost half since late February.
And while there is certainly risk to the residents of the 200-plus facilities CareTrust owns, I think the reward for investors makes it worth investing in. Protocols to clamp down on the risk of exposure to coronavirus have been implemented across the country since dozens of residents of a seniors facility in Washington State contracted COVID-19 early in the outbreak.
Moreover, CareTrust stands out as one of the best-run seniors housing REITs, has one of the strongest balance sheets, and offers an incredible value even with the increased perception of risk.
Lastly, seniors housing and healthcare is a huge, and growing need in the U.S. as the population ages. Caretrust could face some near-term headwinds, but long-term demand will be high, and the share price is still basically half what it was not even a month ago. Like Brookfield Infrastructure, just returning to the prior high price should prove a low bar for a business with incredible long-term growth prospects, and the best management team in its industry.
Taking on short-term risk to seize the long-term opportunity
It can be really difficult to act when markets are in freefall, and uncertainty about the future is rampant. We really don't know what will happen in the next few weeks, months, or even the rest of this year.
But that's how it always is with stocks: You can't predict what will happen the short term. Three months ago, I would have had trouble coming up with a viable reason why any of the three would have fallen so much. But when we look beyond the stock price changes and focus on the businesses, that's where we can find solace. All three are built to make it through the downturn and coming recession just fine, and today's prices should represent incredible bargains when life -- and business -- returns to normal.