Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
ARE YOU LOVING YOUR SERVITUDE? - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Your Flight to Safety Investment Checklist for the Rest of 2009

Stock-Markets / Investing 2009 Jul 15, 2009 - 11:40 AM GMT

By: Q1_Publishing

Stock-Markets

Best Financial Markets Analysis ArticleIf the second half of this year is only one-tenth as volatile as the first half of the year…buckle up!

The way it’s shaping up the markets are in for a stressful trip on a windy road.


This can be good or bad though.

Regrettably, folks investing in the mutual funds, a broad basket of large-caps stocks, and index-tracking ETF’s will likely end up back where they started.

On the positive side, Investors who stick to companies with attributes which allow them to thrive in an economy like this will fare much better.

Basically, over the next few months we’ll start to see a division between poor, good, and great companies. Investors will flock to a company that proves it is able to deal with the current and future economic malaise.

Add to the mix a large portion of investors who are still somewhat shell-shocked from recent market “action” and you’ve got a situation where most stocks go nowhere at all, a few will fall by the wayside, and even fewer will do exceptionally well.

Here’s a simple checklist to help you invest successfully, and safely, for the rest of 2009.

Safety First

To get an understanding how investors determine the next groups of winners from losers, we’ve got to look at how investors are thinking right now.

A recent survey by Barclays tells us quite a bit about what “most” investors are thinking right now. The survey, taken a few weeks ago, asked 2100 high net worth (HNI) investors what they thought about the economy, the stock market, and whether they participated in the recent rally. The results may surprise you.

According to the survey:

68 percent expect risk of further drop in asset prices is to significantly impact decisions

50 percent said they will devote more time to selecting investments

88 percent said that opportunities exist in the current market

Only 27% (average) said they are “most likely” to increase their portfolio risk

Do you notice a few overriding themes?

Clearly, these investors are seeking safety and will be exercising more caution.

Long time Prosperity Dispatch readers may remember how investors have developed a “trust” with stocks over the past 27 years. The multi-decade, secular bull market trained investors to “buy the dips” and you’ll be rewarded. Mr. Market said it may take a while, but it’ll be worth it. Even during huge corrections like the tech crash and 1987 market crash, the trust was never broken. It was more likely reinforced.

This time around though, the trust has been completely broken. Banks stocks, whose dividends were great for widows and consistent gains were perfect for orphans, were one of the most trusted sectors.

All of the trust has been completely shattered. Fear has overtaken greed as the dominant market driver.

As a result, the rest of the year will be driven by a search for safety months. Any new money will be focused on safety, and will move back into the markets with a plodding caution, and we’ll see a period when fundamentals matter again.

Slow and Steady Set to Win this Race

We can’t forget an asset’s true worth is only what someone else is willing to pay for it. The markets are driven higher by new money coming in and they fall when money pulls out.

Considering most of the money is focused on safety, we can expect shares in stable companies to do the best. I’m talking about consistent earnings, stable dividends, and companies with simple business models (ones which you can understand) to do the best.

That’s why I’m looking for shares in companies which are:

Paying Dividends – Income will start fetching a solid premium. Dividends will become cool again.

After all, a flat market with the Dow bouncing back and forth between 8,000 and 9,000 will make regular dividend payments much more desirable.

Red hot growth stocks will be out of favor. Consistent dividends and moderate valuations will be in favor.

Providers of Essential Services - The flight to safety will lead investors to pay a premium for recession- resistant stocks. Although we’ve successfully disproven the “recession-proof” myth throughout the past year, there is still plenty of room for goods and services consumers need.

You’ll see a lot of commentary with the oversimplified rationale of “people have to eat/go to the doctor/turn on the lights/etc.” This will provide the justification for rallies in the agriculture, healthcare, and utility sectors to name a few.

It may be a terribly flawed rationale over the long term, but you’ve got to take what the market gives you. In an era where safety is paramount, businesses providing the essential of life will attract more investors than businesses which live off of discretionary spending. Think Wal-Mart vs. Tiffany & Co.

Expanding Operating Margins – As the ultimate sign of growing demand, operating margins should be watched even more closely. Remember, if operating margins are expanding, a business is getting more profit for each dollar in sales. Expanding operating margins almost always leads to predictable growth in earnings and gives boards of director’s room to increase dividends.

There won’t be many companies that can do it during this recession, but those that can will and their shareholders will be well rewarded.

Growing Backorder Logs – The ultimate sign of stability is a growing backorder log. A company facing a growing backorder log proves demand for its products is strong. They also allow companies to plan more effectively for rest of the year. Growing backorder logs are a great indicator of a company with actual growth opportunities ahead of it, instead of expected opportunities for growth.

Benefactors of Government Contracts/Involvement – Stimulus spending is going to get ramped up in the next few months. The companies with the right connections are going to get their cut of the action. Also, as state governments ratchet up taxes, it’s going to be even more valuable to be on the good side of the federal government’s growing budget.

There are a lot of companies which live off the government. Not all of them will do well. For example, we’ve talked about infrastructure stocks ever since the stimulus was unveiled. We rightly determined they might get a few federal contracts, but it won’t be enough to offset state spending.

Although you’ll have to be a bit more careful when it comes to government contractors, it’s still a great place to start. There’s about $4 trillion freshly printed reasons to consider this sector.

Follow the Money

Market sentiment has come a long way from the near-panic levels reached last fall. And although the markets haven’t recovered to their past highs, and probably won’t for a long time, sentiment is slowly starting to change.

As the survey shows, most investors have become much more cautious. The days of taking a big hit and being able to moderately quickly make it back are over. Mistakes take a greater toll now then they have in the past 27 years.

Despite it all though, these are the financial markets and they’re driven by money. With nearly $4 trillion worth of money still sitting on the sidelines, opportunities may be fewer, but they’re still there.

Good investing,

Andrew Mickey
Chief Investment Strategist, Q1 Publishing

Disclosure: Author currently holds a long position in Silvercorp Metals (SVM), physical silver, and no position in any of the other companies mentioned.

Q1 Publishing is committed to providing investors with well-researched, level-headed, no-nonsense, analysis and investment advice that will allow you to secure enduring wealth and independence.

© 2009 Copyright Q1 Publishing - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Q1 Publishing Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules