Portfolio manager with 50 years of experience shares 1970s bear-market lesson, and three stocks to buy now

These challenging times make it all the more worthwhile to listen to what market veterans have to say. Our call of the day is from Charlie Dreifus, portfolio manager at Royce Investment Partners, who offers bear-market advice from his 54 years of experience (thanks to Hedge Fund Tips).

In a recent interview posted on Royce’s website, he recalled working as a young pension fund manager in 1972-75. “And this was at a time when, much like the FANG stocks of today, there was an anointed group that sold at very high valuations,” said Dreifus.

He was referring to the Nifty Fifty, a group of high growth stocks — McDonald’s
MCD,
-0.30%,
Coca-Cola
KO,
+1.84%,
Disney
DIS,
-2.06%,
Walmart
WMT,
+1.39%,
etc. — that surged from the 1960s until the 1973 bear market, a 50% drop from top to bottom, said Dreifus, who shares what a veteran trader advised him at the time.

“And he says to me, ‘Charlie, hold your horses. This is the beginning of a bear market. What you’ve got to do is pace your purchases, dollar cost average. You don’t know how long this is going to take.’”

That led to him learning about the value of pyramids in investing. “What you do is you buy, think of the top of the pyramid, you buy a little. And as the price declines, you buy more. And on days that market goes up, you stop buying, on the presumption it’s going to down tomorrow or the day after,” he said.

The Special Equity fund
RYSEX,
+0.78%
that he manages for Royce is a small-cap value fund seeking out “conservatively managed companies with transparent accounting that have a viable niche or franchise whose stock can be bought below its economic value.”

He also offered up three stock ideas, as he admitted they weren’t easy to find, with valuations still high even after the recent market pullback.

First up is tax preparer H&R Block
HRB,
+4.99%,
which he likes for its “strong financials, very significant cash flow” and dividend yield. While some worry about clients drifting away as COVID-19 benefits dissipate, he thinks many will stick around for the “suite of financial services” H&R offers that they don’t typically receive.

Dreifus also likes local TV provider Tegna
TGNA,
+0.22%,
which he notes has had several suitors circling, with an activist investor also involved. “The stock, in Wall Street terms, is in play in the sense that people expect a deal above its current price and obviously the current price is above the price we paid for it,” he said, adding that he likes Tegna deal or no deal.

Huntsman
HUN,
+4.03%
is his last pick. The company that transformed from a commodity chemicals company to a specialty chemicals group has also “deleveraged to a remarkable degree,” attracting an activist in the process.

“We will not buy a stock because it’s in play or there’s activist talks. It must be a good investment first. But we’re finding, as I said, increasing instances of this,” said Dreifus.

The buzz

Talks between Russia and Ukraine resumed on Monday, as violence continued and dozens were killed from a deadly attack on a military training center near the Polish border. And Washington and Beijing security officials will meet in Rome, with allegations that Russia asked China for military help high on the agenda.

Russian prosecutors have warned executives at Western businesses such as McDonald’s
MCD,
-0.30%
and IBM
IBM,
-0.02%
over any government criticism.

Spreading COVID-19 cases have forced a lockdown of the Chinese tech hub Shenzhen, closing production at Apple
AAPL,
-2.66%
supplier Foxconn
2317,
-0.98%.
Apple and Nvidia shares
NVDA,
-3.48%
are both down in premarket.

And Pfizer’s
PFE,
+3.94%
CEO said a fourth COVID-19 shot will be required, while shots for young children could begin in May.

Economic highlights this week include retail sales and a Federal Reserve decision on Wednesday, with the first interest-rate increase expected since late 2018. The Bank of England and Bank of Japan will also meet this week.

Read: ‘Unprecedented territory’: Investors watch for Fed rate hike amid high market volatility

The chart

Add rapeseed to the list of commodities whose prices are surging following Russia’s brutal invasion of its neighbor.

“The Ukraine war is driving up the rapeseed price because 80% of the world’s sunflower oil supplies come from the Black Sea region, so demand is now growing for alternative vegetable oils such as rapeseed oil,” notes Commerzbank analyst Carsten Fritsch, who provides this chart:

“Rapeseed is being lent additional tailwind by the sharp rise in oil prices, as this is also pushing up prices of biofuels such as biodiesel, in which rapeseed oil is used,” said the analyst in a note.

Canada and China are big producers, along with several European countries, as well as Ukraine.

The markets

The Dow and S&P 500 have kicked off Monday’s session with gains, but the Nasdaq
COMP,
-2.04%
is down, while bond yields
TMUBMUSD10Y,
2.162%
are on a tear and oil prices
CL00,
-4.49%

CL.1,
-4.49%

BRN00,
-4.40%
are down about 4%. Gold
GC00,
-0.76%
is pulling back. European equities
SXXP,
+1.20%
got off to a firmer start, with Asia mostly lower, and a 5% drop for Hong Kong stocks
HSI,
-2.20%
over that COVID-19 lockdown and a continued tech selloff.

Top tickers

These were the top-traded tickers on MarketWatch as of 6 a.m. Eastern Time:

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