2 stocks that you will have bought in 10 years
As the COVID-19 pandemic continues, some companies are not doing well. Banks, for example, are preparing for billions of dollars in losses as the increased unemployment rate could lead to a surge in consumer credit defaults. And shopping malls not only had to close for several months as the pandemic worsened, but many retailers even struggled to survive before the pandemic.
Even so, it could be an excellent time for patient long-term investors to acquire shares in some of the best companies in companies like this one. That’s why I recently bought shares in. added Bank of America (NYSE: BAC) and Simon Property Group (NYSE: SPG), and why you might want to add them to your radar too.
It’s a terrible environment for banks … for now
While Banking business is obviously more complex than I can describe in a few sentences, at its core the idea is pretty simple: banks take out deposits, lend money to customers and benefit from the interest they collect on these loans.
With that in mind, it should come as no great surprise to hear that this is a terrible environment for banks to make money. Not only are interest rates at record lows, but the COVID-19 pandemic could spike loan write-offs if increased unemployment persists. In fact, Bank of America allocated an additional $ 3.6 billion in the first quarter alone to build its loss reserves, and even that may not be enough.
However, there are a few things to keep in mind. For one, fluctuations in interest rates are a natural part of the economy. The current low interest rate environment is somewhat extreme, but it won’t last forever. And banks can make profits from lending even in low interest rate environments (mortgage and car loan rates are not Zero). Also, banks are well capitalized institutions these days, and there is currently no reason to believe that the credit losses will be something Bank of America cannot handle.
Because of its low rating and impressive transformation over the past ten years, I prefer Bank of America in this sector. The company has done a fantastic job increasing profitability and efficiency and has grown into a leading provider of banking technology. At the current price of 10% fewer than its book value, it looks like a compelling long-term entry point.
The best-in-breed mall operator is adapting well to the new world of retail
It is a hideous Time to be a mall. Lots of mall-based Retailers fought before the pandemic broke out, and we could certainly see another wave of bankruptcies and store closures as the full economic effects of the pandemic continue to unfold.
But when it comes to shopping malls, Simon is in a class of his own. She owns a portfolio of more than 200 properties, many of which are among the most valuable retail properties in the world. Simon’s properties include ultra-high-end malls under the Mills brand and others, and the industry’s largest outlet shopping portfolio under the well-known Premium Outlets brand.
Simon is in the middle of a long-term transformation of his real estate into mixed-use destinations that include residential, hotel, entertainment, office and other non-retail elements that bring pedestrian traffic into his retail space. And a wave of personal bankruptcies could even work in favor of Simon – the company has already acquired (with partners) Aeropostale and Forever 21 and is in talks to acquire JC Penney.
It’s pretty unfair to judge any Business by 2020 numbers, but in 2019 Simon’s retail tenants actually reported sales increasingly by almost 5% year on year on a square meter basis. With shares falling more than 50% year-to-date, Simon could be a hidden long-term value game in the troubled retail sector.
Don’t expect a smooth ride
You might not be excited about these stocks in a month or even a year. As long as the economic uncertainty surrounding the COVID-19 pandemic continues, I expect they will take investors on a roller coaster ride.
The point, however, is that these are two well-run companies with persistent competitive advantages that should do well in the long run. I have personally added shares of both stocks to my portfolio over the past few months and I am confident that in a decade I will look back and be very happy about it.
This article represents the opinion of the author who may disagree with the “official” referral position of a premium advisory service from the Motley Fool. We are colorful! Questioning an investment thesis – even one of our own – helps us all think critically about investing and make decisions that will help us get smarter, happier, and richer.