I’ve talked a lot about risk in the markets lately, and for good reason. Worries over the distortions caused by NIRP/ZIRP … wild overvaluation and tighter lending standards in commercial real estate … a deflating bubble in the auto sector … and anemic economic growth here and abroad aren’t going away. Indeed, they’re likely to get worse rather than better over time.
Market Roundup
But I’m still asked about opportunities from time to time – potential diamonds in the rough, or specific stocks investors can make money on even in a more challenging environment. So with that in mind, what do I find interesting – even in this risky world?
Well, the defense sector is one that’s doing well exactly precisely BECAUSE it’s a risky world. I wrote about the prospects for those kinds of names last spring, and they’ve been on fire.
The iShares U.S. Aerospace & Defense ETF (ITA) is up more than 11% this year. Keep in mind though: The COMMERCIAL aerospace industry is likely to face some problems, given the excess capacity, weaker airfares, and reduced profitability that airlines are facing. You’re better off sticking with companies that have more defense/military exposure.
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| We’ve seen some rotation out of consumer staples names. |
Next, I know we’ve seen some rotation out of consumer staples names in recent weeks. But given the ongoing M&A in that sector, the often-generous yields, and the business stability these companies offer, I wouldn’t be so quick to jump ship. One of my favorite names from my Safe Money Report just had its biggest one-day percentage gain since October after releasing an encouraging earnings report.
How about some of the medical device or pharmaceutical companies, those that benefit from an aging population and that have less economic sensitivity? Pet care/vet supply firms, which are benefitting from the increase in animal spending and ownership? Gold miners, which have had a stellar year and look primed to benefit from increasing risk in the global economy?
Those are some other areas I’ve been investigating recently, and looking at for opportunistic “buys” despite the big-picture risks I’ve outlined for you. They share a common theme: They’re not your run-of-the-mill kinds of stocks, or stocks that need a booming economy or a clear-cut, massive market uptrend to thrive. Plus, by using our in-house Weiss Ratings, I can screen for names that offer the right combination of strong underlying fundamentals. You’ll find the names that meet my standards every month in my Safe Money Report.
So what do you think about some of these profit opportunities? Do you think I’m on the right track with them? Do you have other “out of the mainstream” stocks or sectors you like, even in this higher-risk world? Let me hear about them in the comment section below.
Until next time,
Mike
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I hope you had a good weekend, and I’m glad you took some time to comment on the markets and the economy, too.
Reader Jim S. shared these relatively pessimistic thoughts on the economic outlook: “Consumer spending has dropped. Major retailers and restaurant chains are planning closures in large numbers. If the consumer is what has been propping up the economy, this is a warning sign.
“Tax revenues have dropped, as income levels are not generating the anticipated tax revenue. Savings rates are up. Cornered animals can sometimes sense danger ahead.”
Reader Steve N. said he’s getting more cautious with his investments, given the current economic backdrop: “As there is no marginally safe area to collect income in this market, I have been fully invested in stocks until a couple of months ago, and have systemically been going to ‘useless’ cash. I have been early before and expect my patience will be tested. Ultimately, it will be right to have dry powder when future bargains arise.”
But Reader Mark T. said moving to the sidelines could be a risky strategy too: “Why aren’t your retiree readers more diversified? Haven’t 35 years of declining interest rates convinced them to have at least 50 percent of financial assets in high-quality, dividend-paying stocks? Maintenance of income is as important a financial objective as preservation of principal.”
Meanwhile, with regards to the oil market, Reader John T. said: “OPEC is caught between a rock and a hard spot. If they cut production and prices rise to the $65 to $70 level, that will bring the U.S. frackers back on board. Their lead time to bring on new production is short, only a few months. I believe that will put a lid on oil prices for quite a while. Warms my heart to see OPEC being squeezed.”
Thanks again for weighing in. Safe income is indeed a goal of many of you … even as interest-rate repression is making it harder to come by. My best ideas can be found in my Safe Money Report . So be sure to check out the latest issues online – or consider signing up here if you’re not on board yet.
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The easiest monetary policy in the world is accomplishing nothing in Japan, at least from an economic standpoint. I say that because second-quarter GDP rose just 0.2%, far below the 2% rise in the first quarter and forecasts of a 0.7% gain. The only reason GDP rose at all was because of government spending. Business spending slumped, household spending was essentially flat, and exports dropped sharply.
Emerging markets are hot again, after being ice cold as recently as last year. Investors are plowing money into both EM bonds and stocks in a desperate search for yield, sending prices higher and yields lower. This comes as many developed-world bond markets offer low, or negative, yields.
Early reports on the economy’s performance in August are starting to trickle in, and they’re not exactly blowing the doors off. Case in point: The Empire Manufacturing Index released this morning dropped to -4.2 from 0.6 in July. That was well below expectations for a reading of 4.
Flooding in Louisiana has claimed three lives, and displaced thousands of residents. The flooding stemmed from a slow-moving weather system, which dumped more than a foot of rain on the state.
Is there something that will get growth in Japan going again, or growth here in the U.S. for that matter? What about the flow of money into emerging markets – healthy or worrisome? Let me hear your thoughts on those or other topics in the comment section below.
Until next time,
Mike Larson
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
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The masses are suffering from income famine. This central bank con game bubble will
soon fade.
Meh, it’s too soon to say conclusively, but each day we’re getting closer to an August Top/October Crash scenario. Now is not the time to establish new long positions! Now is the time to take profits! In the months ahead, either sit on your thumbs, or if you’re agile and can time the market, there are any number of 3/x ETF’s available. And, gold has started to act as a flight-to-safety vehicle lately, so after the major indexes make a top, if gold makes a decent correction in the coming weeks, there could be an opportunity to go long in the yellow metal.
Is a ‘good’ market an up market?—is a “bad” market a down market? Nature works best when that pendulum brings activities back to balance. Just because we tend to think things are best if increasing in price, in size, in energy, etc,— really? I’m glad my children didn’t keep on growing larger after they hit 21 !!
Japan always seem to do well when Godzilla was tearing through everything. Where is he when the country needs him.
In Japan with an aging population, shrinking labor pool, xenophobic approach to immigration, lack of innovation, lack of pricing power, and no growth in productivity – how can you ever attain economic growth? These are fundamental structural problems that government spending cannot overcome.
Please boycott military stocks. 60% of our discretionary tax dollars are going to the military while people are hungry and without healthcare. These companies are real good at buying politicians who will send us to Vietnam, Iraq, Libya etc.. Just say no!
Yes your right johnfromojai
Wars are where old rich men send innocent young boys off to lose their lives in defense of falsehoods. Their mission is to kill as many innocent women and children they can to defend the oil wells. Are these innocent victims also not part of the everybody’s life matters movement. Does this movement exist like the black lives matter movement well it should.
You want growth in Japan or the US to increase. That’s easy. Demographically reduce the average age of the population. . . but wait . . . that might have some unforeseen consequences depending on how that is accomplished; like killing off old people by further stripping the value in their life savings with more QE . Maybe it is not so easy after all.
I AGREE WITH ROBERT.
Yes Mike money is flowing into emerging markets. Here in Thailand you can buy good stocks on the SET for a few bucks a share vs the ridiculous price in the USA for the likes of Google Amazon Facebook and Netflix. The prices of these stocks really blows my mind. When they tumble it will not be pretty. Yes they have amazing products but pricey products that soon will be priced out of the range of the middle classes shrinking income. WOW driverless cars, VR technology, cars with AI technology that can be easily hacked VW comes to mind. When the money machines dry up its game over. The SET is up almost every day now pushing 1538 and the government (hmmm) says it will hit 1600 by years end which I think is doable. The baht strengthens almost daily. A investing Utopia.
China states
China is confident of reaching its official consumer inflation target of around 3 percent. unquote WOW all the news coming out of China is full of Euphoria confidence courtesy of the Communist party you know the “believe in us” people who would never lie to investors. Look at the Chinese market hurry buy in it has reached 6 month highs courteousy of the Communist party and all of their stimulus money. But wait what did I see in the news today oh yes borrowing for the last quarter you know the fuel that gooses the economy dropped by 50%. Oh Oh could there be trouble ahead??? Stay tuned. Keep buying.
Of course, our tax dollars need to feed the 600 lb gorilla in the room.
Anaemic means the red corpuscles level in your blood stream doesn’t it. Or it does it mean an iron deficiency. People’s health is generally is downward sloping curve the older they get. Like a downward sloping demand curve.
What is your evaluation for uranium in the next couple of years, Comeco ?