A Loss Month…A Ho-Hum Quarter. Buy “Fun Stock” Six Flags (SIX) for Growth and Income (4.3% Yield)
The U. S. stock market for March could best be described as a “yo-yo” market! Unlike a “roller coaster” market with somewhat smoother ups and downs, March was up strong one day and vigorously down the next day. In fact, there were 15 out of 22 trading days where the Dow Jones Index made swings of triple digits. All this action got us nowhere and frustrated the traders as the broad-based S&P 500 lost 1.8% and ended the first quarter up only 0.44%.
However, investors who stayed focused on the better and more fundamentally sound sectors for the first quarter realized solid gains in health care (up 22%), technology (up 14%), and what we define as “consumer-powered sectors” (e.g., cruise lines, up 15%). On the other hand, avoiding energy-related and materials sectors which were down 17% and 19% respectively were smart moves.
Our initial outlook for the second quarter indicates more of the same “yo-yo” effect as corporate earnings are mostly projected to disappoint. The Bull and Bear battle will continue in earnest without any strong trends either way until the U.S. Federal Reserve (Janet Yellin, Chair) tells us how soon and how much interest rates will rise in the coming year.
No Change in TSOA Retirement Allocation Models
Despite the prospects of continued high volatility in the stock markets, we do not see a need to make any changes to our current TSOA asset allocation models for retirement accounts (401k, 403b, IRA’s, etc.).
Buy Six Flags Entertainment Corporation (SIX): Current Yield 4.3%
As we transition from our fixed Fun Stocks Index to a flexible Fun Stocks Portfolio, we will add Six Flags (SIX) to our new portfolio “buy list.” SIX is a theme parks management company that operates 16 theme parks throughout the US (plus one in Canada and one in Mexico). Since 2010, when SIX came out of bankruptcy, it has been given a second life because it has effectively implemented a solid new strategic focus. New rides and attractions coupled with a stronger pricing strategy have resulted in positive trends in sales and earnings.
Rising consumer discretionary spending should help SIX to continue to reap profitable gains. However, if consumer spending drops due to weakness in the U.S. economy, SIX will be adversely affected. Therefore, and despite its attractive 4.3% current yield, investors should view SIX as a high-risk holding that deserves only a small allocation in their portfolios.
Please note: Jim Tso owns shares of SIX in his IRA.