Stocks to count on while the
economic recovery struggles
Article from InvestorPlace
Jul
18, 2011, 1:39 pm EDT | By Jon Markman,
Editor, Trader's Advantage
Market
bulls and bears are at a standoff as the global economic recovery struggles —
but not all stocks are in danger of slipping.
Major
U.S. stock indexes inched higher as optimism that companies will report higher
second-quarter profits outweighed fears that job growth is crashing.
Breadth
has been the hallmark of the recent advance, but last Friday was a terrible day
— losers outpaced gainers by a four to one margin. Stocks drifted in a range so
narrow at midweek that if you turned it sideways, you couldn’t see it.
The
bears had a chance to knock sentiment down once Moody’s credit-rating service
kicked Portugal’s sovereign debt down under the counter, below the sink and
into the basement, and a fairly nasty report on the U.S. service economy
followed.
But
bulls found a way to pump a few more molecules of helium into their uptrend,
and the major indexes ended in the green.
And
now we have a standoff, the bulls and bears looking at each other over the
barricades with a gleam in their eyes — each knowing without a doubt that they
are about to take down the other.
I
would love to be optimistic, but the data that I see suggests the world has
entered into a cyclical industrial slowdown that has crippled business
confidence and job growth. So even if second-quarter earnings are good,
outlooks will likely be poor. And ultimately, that means stock prices will
peak.
As
for the situation in Europe, industrial growth is also probably peaking, so the
next quarter-point interest-rate hike by the European Central Bank will likely
be the last for a while. Capital Economics analysts expected German industrial
production data to show a decline of 0.6% in the latest reporting period,
sinking to the lowest level in nine months.
The
European Community index of industrial sentiment, the IFO manufacturing index,
and the region’s manufacturing PMI survey have also all fallen recently. Some
recovery, huh?
So
what worked best in the market when it was rising? Whatever was messed up the
most in the prior month. Real estate. Tech. The junky Chinese IPOs. Energy. The
worst shall be first.
But
that’s not all. If that’s what it was all about, we could easily get smug about
the rebound and expect it to be very short-lived.
The fact is though, that a lot of very good
stocks have been finding favor as well. Like electronic-medical-records
standout Cerner (NASDAQ:CERN).
And Caterpillar (NYSE:CAT), FedEx (NYSE:FDX), DuPont (NYSE:DD), Apple (NASDAQ:AAPL) and dare I say
it, Google (NASDAQ:GOOG).
And select exchange traded funds beat the market like a steel
drum, led by iShares S&P MidCap 400 Growth (NYSE:IJK) and iShares Dow
Jones US Health Care (NYSE:IHF). These are your
leaders.
And
let’s not forget to go for the gold.
Gold
futures have been shooting higher over the past week, in contravention of the
usual seasonal pattern in which they normally move higher at the end of the
summer. Part of the reason may be the downgrade of Portugal combined with
turmoil in the Italian and Spanish stock markets, the widening of the spreads
on Italian and Spanish credit and rumors of a coming downgrade of Irish debt.
A lot
of people seem to think that the next round of downgrades and piling-on will
wait until the Europeans complete their August vacations, but I really doubt
they will wait.
Right now, gold is within an inch of its
all-time high–yet shares of gold miners are down, as benchmarked by the Market
Vectors Gold Miners (NYSE:GDX), which is still
15% off from its high.
We
made very good money in the gold miners last year in the late summer, and I
have been planning to wait again. There is no rule that says the miners’ stocks
have to follow the metal, and in fact many large South African miners are being
hit by a wave of selling due to rumors of a potential nationalization.
Gold
shares are certainly inexpensive now, and could become even cheaper in the next
few weeks. Seasonally they usually start moving up in August, but two years ago
they began to rise in July, and last year it was mid-July.
A new
all-time high in the yellow metal may mean it’s time to buy some GDX, even if
the calendar says it’s still a little early.
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