The junk bond market is reeling. The easy money that fueled massive stock buybacks and mega-deals is starting to dry up. Initial Public Offerings (IPOs) are struggling. And the economic problems that were previously hitting hard overseas are increasingly washing up on our shores.
But even in a lousy broad market … even in a challenged economy … there are actually a handful of stocks I DO like. They offer an all-important combination of characteristics that can help them survive and thrive even in a bear or “bear-like” market.
Characteristic #1: Low Volatility. In this environment, you don’t want to own stocks that swing violently all over the map. You don’t want the flashy names that might surge 5% one day, only to plunge 10% the next. You want to focus on stable, Steady Eddie names.
They may seem boring to hedge fund gunslingers or fast-money traders. But they’ll help patient, prudent investors like you sleep well at night.
|Even in a challenged overall market, there are some stocks and sectors worthy of taking a chance on.|
Characteristic #2: High Ratings. Forget the “D” and “E” rated dreck. Stay focused on “A” and “B” rated names, as identified by our time-tested, quantifiably based Weiss Ratings. They have the potential to hold their value much better … and to generate gains … even in tough times.
Characteristic #3: Recession-Resistant Businesses. Deep industrials. Financials. Materials. They’re great stocks to own when the economy is booming, and sales and earnings are growing by leaps and bounds. But when conditions sour, history shows they can be pure poison for your portfolio.
I prefer safer sectors like consumer staples, utilities and the like. No matter how bad the economy gets, you still have to eat and you still have to turn the lights on.
Indeed, despite the fact financials, biotechs, small-capitalization stocks and more are badly lagging in this rebound … and despite all the challenges I’ve been chronicling … I still have one name that meets all these criteria in my Safe Money Report. It just hit an all-time high this week. A very small handful of other names I’ve identified held up well in the downturn, and are doing well in the bounce, too.
So if you’re going to own stocks, own the ones with characteristics like I just outlined. Then balance that out with hedges targeting vulnerable names and sectors, and a healthy cash position.
|“I prefer safer sectors like consumer staples, utilities and the like.”|
Does that sound like a solid strategy to you? Or are you taking a different approach? Are there any individual stocks or sectors you’re focusing on here? Or are you just plain too scared to own anything? Have other investment ideas that I didn’t touch on here? Then head over to the Money and Markets website and share them with your fellow investors.
What does the boom in junk-bond issuance mean for the markets? What about the increasing size of mega-deals? And how about the lack of a Social Security cost-of-living adjustment? These are the topics you’ve been discussing online.
Reader Chuck B. said: “It is one thing when a company finances a takeover or a stock buyback or dividend increase from its own resources. But when it borrows money for the purpose, stockholders should take a close look at what is going on in the company.
“Executives may be trying to artificially boost the stock price and make the company look better than it really is, to justify their own salary and bonuses. They should be called to task for that. They could eventually cause serious problems within the company, maybe even cause it to fail — possibly after they have left with their profits.”
Reader Robert P. added: “I may be wrong, but it seems to me that bonds, junk or otherwise, have had their heyday already — what with the Fed buying up everything they can get their hands on, at whatever the prevailing price happened to be, all in the name of ‘quantitative easing.'”
Reader Rob U. was even more emphatic about what may be coming next: “Low quality IPOs. Merger mania. Real estate mania in LA and NY. ‘Crane’ index at all time highs. China real estate bubble has burst. Near record consumer confidence. Very low unemployment and jobless claims. Record margin debt. A powerless Fed.
“If you are positive about stocks and the economy, you don’t understand financial history.”
As for Social Security, Reader Locutus said: “Am I the only one bothered by the approximately-$118,000 per year cutoff in Social Security withholdings? If I understand it correctly, that means Bill Gates and Katy Perry are each paying the same in annual Social Security costs as someone making $117,500 in annual salary.
“If Social Security truly is a Ponzi scheme, then let’s increase that ceiling tenfold, to $1,180,000 per year. Those making that kind of bank can well afford it. The assistance to the overall Social Security picture could be staggering in the long-term.”
Finally, Reader Jim said: “What do we not understand about the government owing us $100 trillion in unfunded liabilities? They don’t have it and they aren’t going to have it.
“Like every politician, they have made promises they can’t keep because they won’t be here to take the blame when it collapses. Most Americans still don’t understand they have all been sold down the river by the Federal Government.”
Thanks for weighing in. I too see a lot of reasons for concern — signs of financial excesses everywhere coupled with deterioration in several, “behind the scenes” indicators they don’t talk about every day on CNBC. That makes this a potentially very treacherous market, the early October snapback rally notwithstanding. So I’m not inclined to chase stocks here until we get more clarity.
Please do keep the discussion going, though, especially if your comments haven’t been addressed yet. This link will help you get started.
Canada has a new prime minister and a new political party at the helm. Liberal Party candidate Justin Trudeau beat out Conservative Stephen Harper, helped by general unhappiness with the economy and the government’s policies for combating weakness north of the border.
Disney (DIS) took advantage of the miracle of cross-platform marketing last night. It releases the latest trailer for its Lucasfilm division movie “Star Wars: The Force Awakens” on its ESPN network during the Monday Night Football broadcast. The seventh movie in the Star Wars saga hits U.S. theaters on Dec. 18.
Several companies reported earnings in the past 24 hours, and the results were a mixed bag. IBM (IBM) and Harley Davidson (HOG) disappointed, while Travelers (TRV) and Verizon Communications (VZ) fared better.
OPEC is holding a “technical meeting” tomorrow, one that will also include representatives for non-OPEC countries like Mexico and Russia. But no one is expecting a change in OPEC’s current Saudi-driven policy of flooding the market with oil to stick it to U.S. shale producers . So unless there are any surprises, it likely won’t impact the oil market too much.
Any thoughts on all these earnings reports? The unwillingness of OPEC to cut production? Canada’s new political reality? Head over to the website and share your thoughts when you have a minute.
Until next time,