How to Play the “Washington Risk” With Generac Holdings
As we kick off another trading week, let’s begin by addressing the “Washington Risk” that’s now dictating the minute-by-minute moves of the stock market every day.
By “Washington Risk,” I mean that the news out of Washington (specifically the current U.S.-China trade negotiations) now has 100% influence on the minute-by-minute movements of the major market averages.
So let’s quickly summarize where I believe everything stands…
First off, we’re starting to hear rumblings that the “Phase 1” trade deal the market celebrated last week may not be as strong as we were led to believe.
Secondly, last week’s deal is now being viewed as a “temporary truce” instead of a true pact. Said Barron’s, “This isn’t the trade deal the stock market was hoping for.”
Warren Maruyama, former general counsel at the Office of the U.S. Trade Representative, describes the deal as “very preliminary” – noting that “markets have been extraordinarily gullible.”
Rajiv Jain, chief investment officer at GQG Partners (who oversees $26.5 billion in assets) says that any market gains on a “mini-deal” would likely be an opportunity to sell. He notes that the interests of both sides are still far apart – and doesn’t see a comprehensive deal on the horizon.
To me, it seems like the low-hanging fruit was addressed first – and this kicked off the meeting on a positive note. In classic form, Wall Street overreacted – and the markets blasted off last Friday. But now, as we start this week, we might see the true facts come out.
Case in point, the China Daily, an official Chinese state-owned English newspaper, said…
While the negotiations do appear to have produced a fundamental understanding on the key issues and the broader benefits of friendly relations, the Champagne should portably be kept on ice, at least until the two presidents put pen to paper.
So, as traders, how should we play this?
For the moment, at least, we should look elsewhere.
Today, I’d like to bring your attention to a small cap that has nothing to do with the trade negotiations.
Rather, it benefits from the rapidly changing amounts of extreme weather we’re now seeing across the country.
Specifically, this company came onto my radar because of the wildfires in California, where 750,000 people in the central and northern parts of the state could now be without power.
The beneficiary of this could be Generac Holdings (NYSE: GNRC).
Last Wednesday, the company rallied 10% when Wall Street realized that Generac Holdings sells more than 75% of the U.S. residential backup generators – and 25% to 30% of portable generators.
With Pacific Gas and Electric Company instituting rolling blackouts, Generac Holdings expects California to add $100 million to its revenue by 2023.
Just look at the chart. Up 48% over the last 52 weeks, Generac Holdings has been one of the steadiest names you’ll find on Wall Street right now.
Action Plan: If you think extreme weather will continue, then Generac Holdings is a way to play it. Bank of America analyst Ross Gilardi said Generac Holdings’ home generator business provides “the best growth outlook in U.S. machinery by a country mile.”
I agree – making this name a buy on any dip.
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