Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Massive Stock Market Price Reversion May Be Days or Weeks Away - 22nd Sep 19
How Russia Seized Control of the Uranium Market - 22nd Sep 19
Dow Stock Market Trend Forecast Update - 21st Sep 19
Is Stock Market Price Revaluation Event About To Happen? - 21st Sep 19
Gold Leads, Will the Rest Follow? - 21st Sep 19
Are Cowboys Really Dreaming of... Electric Trucks? - 21st Sep 19
Gold among Negative-Yielding Bonds - 20th Sep 19
Panicky Fed Flooding Overnight Markets with Cash - 20th Sep 19
Uber Stock Price Will Crash on November 6 - 20th Sep 19
Semiconductor Stocks Sector Market & Economic Leader - 20th Sep 19
Learning Artificial Intelligence - What is a Neural Network? - 20th Sep 19
Precious Metals Setting Up Another Momentum Base/Bottom - 20th Sep 19
Small Marketing Budget? No Problem! - 20th Sep 19
The Many Forex Trading Opportunities the Fed Day Has Dealt Us - 19th Sep 19
Fed Cuts Interest Rates and Gold Drops. Again - 19th Sep 19
Silver Still Cheap Relative to Gold, Trend Forecast Update Video - 19th Sep 19
Baby Boomers Are the Worst Investors in the World - 19th Sep 19
Your $1,229 FREE Tticket to Elliott Market Analysis & Trading Set-ups - 19th Sep 19
Is The Stock Market Other Shoe About To Drop With Fed News? - 19th Sep 19
Bitcoin Price 2019 Trend Current State - 18th Sep 19
No More Realtors… These Start-ups Will Buy Your House in Less than 20 Days - 18th Sep 19
Gold Bugs And Manipulation Theorists Unite – Another “Manipulation” Indictment - 18th Sep 19
Central Bankers' Desperate Grab for Power - 18th Sep 19
Oil Shock! Will War Drums, Inflation Fears Ignite Gold and Silver Markets? - 18th Sep 19
Importance Of Internal Rate Of Return For A Business - 18th Sep 19
Gold Bull Market Ultimate Upside Target - 17th Sep 19
Gold Spikes on the Saudi Oil Attacks: Can It Last? - 17th Sep 19
Stock Market VIX To Begin A New Uptrend and What it Means - 17th Sep 19
Philippines, China and US: Joint Exploration Vs Rearmament and Nuclear Weapons - 17th Sep 19
What Are The Real Upside Targets For Crude Oil Price Post Drone Attack? - 17th Sep 19
Curse of Technology Weapons - 17th Sep 19
Media Hypes Recession Whilst Trump Proposes a Tax on Savings - 17th Sep 19
Understanding Ways To Stretch Your Investments Further - 17th Sep 19
Trading Natural Gas As The Season Changes - 16th Sep 19
Cameco Crash, Uranium Sector Won’t Catch a break - 16th Sep 19
These Indicators Point to an Early 2020 Economic Downturn - 16th Sep 19
Gold When Global Insanity Prevails - 16th Sep 19
Stock Market Looking Toppy - 16th Sep 19
Is the Stocks Bull Market Nearing an End? - 16th Sep 19
US Stock Market Indexes Continue to Rally Within A Defined Range - 16th Sep 19
What If Gold Is NOT In A New Bull Market? - 16th Sep 19
A History Lesson For Pundits Who Don’t Believe Stocks Are Overvalued - 16th Sep 19
The Disconnect Between Millennials and Real Estate - 16th Sep 19
Tech Giants Will Crash in the Next Stock Market Downturn - 15th Sep 19
Will Draghi’s Swan Song Revive the Eurozone? And Gold? - 15th Sep 19
The Race to Depreciate Fiat Currencies Is Accelerating - 15th Sep 19
Can Crypto casino beat Hybrid casino - 15th Sep 19
British Pound GBP vs Brexit Chaos Timeline - 14th Sep 19
Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - 14th Sep 19
War Gaming the US-China Trade War - 14th Sep 19
Buying a Budgie, Parakeet for the First Time from a Pet Shop - Jollyes UK - 14th Sep 19
Crude Oil Price Setting Up For A Downside Price Rotation - 13th Sep 19
A “Looming” Recession Is a Gold Golden Opportunity - 13th Sep 19
Is 2019 Similar to 2007? What Does It Mean For Gold? - 13th Sep 19
How Did the Philippines Establish Itself as a World Leader in Call Centre Outsourcing? - 13th Sep 19
UK General Election Forecast 2019 - Betting Market Odds - 13th Sep 19
Energy Sector Reaches Key Low Point – Start Looking For The Next Move - 13th Sep 19
Weakening Shale Productivity "VERY Bullish" For Oil Prices - 13th Sep 19
Stock Market Dow to 38,000 by 2022 - 13th Sep 19 - readtheticker
Gold under NIRP? | Negative Interest Rates vs Bullion - 12th Sep 19
Land Rover Discovery Sport Brake Pads and Discs's Replace, Dealer Check and Cost - 12th Sep 19
Stock Market Crash Black Swan Event Set Up Sept 12th? - 12th Sep 19
Increased Pension Liabilities During the Coming Stock Market Crash - 12th Sep 19
Gold at Support: the Upcoming Move - 12th Sep 19
Precious Metals, US Dollar, Stocks – How It All Relates – Part II - 12th Sep 19

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

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