Stocks To Own In A Fearful Market
The Dynamic Wealth Report
September 19, 2008
Fear Indicator At Record Levels, What To Do Now!
Our financial industry’s hit a road so rough parts are starting to shake
right off the car! You don’t need me to tell you, the market’s scaring
professional and individual investors alike. The Dow fell 500 points on
Monday. Then it was down another 449 points on Wednesday. Yesterday it
climbed back more than 440 points. And today . . . well, were up (and up
big) but will it last?
Lehman’s in bankruptcy. And AIG became the latest company to be owned by
the government. They get to join Freddie Mac and Fannie Mae as Treasury
run institutions. To pour salt on the AIG wound, Dow Jones kicked them
out of the Dow index. (As they should have.)
Fear’s gripping the markets . . . and It’s getting worse. I’ll prove it
to you. I’m going to show you a perfect indictor of the fear in the
market.
Here’s a picture worth a thousand words . . . .
Do you see what’s going on here?
This chart is simple. It shows the yield an investor can get from the 1
month treasury. Remember, government bonds, especially those issued by
the US government, are the safest in the world. Investors afraid of
losing money put it in government bonds (this drives yields lower).
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Yields on government bonds are down 95%.
Massive amounts of cash are being shoveled into these very bonds. I was
explaining this to my brother and his comment was insightful. “Can’t you
get a better yield in a bank account?” Of course you can. But investors
aren’t trusting banks anymore.
You can also get a higher yield in money market accounts. But money’s
flowing out of those accounts too. As a matter of fact, Putnam just shut
down a $12 billion money market fund. Why? Because investors are pulling
money out.
This is a huge shift in investor psychology.
Investors no longer care about getting a return on their investment . .
. they only care about getting their investment returned!
The Fed and the Treasury are doing all they can. New initiatives and
programs to save financial firms look good at first, but will they work?
Fear’s wrapped its hands tightly around the throat of the market.
What to do now?
I started looking at the markets for some actionable Ideas. And I
stumbled across this one. Do you know what industry tops the performance
tables for the last two months? Believe it or not the Airlines. The
airline industry’s up more than 26% in 8 weeks! And it’s all because of
oil prices dropping.
So I did a bit more research (Because I hate the airlines).
I found a small group of other industries who’ve outperformed the market
by 12% or better. That’s right. The market’s been dropping like a rock,
and these companies are moving higher. In the last 2 months they
actually posted some impressive gains.
One of those industries was the “Non-Durable Household Products”
industry. It’s up almost 12%.
I know, I know. What does “Non-Durable Household Products” mean? It’s
basically the group of companies that make products for use around the
house.
These are companies lie Clorox (CLX). They make hundreds of consumer
products like Clorox Bleach, Armor All, K.C. Masterpiece BBQ Sauce, and
Kingsford.
My personal favorite in the group is Proctor & Gamble (PG). We’ve
mentioned Proctor & Gamble several times over the last few months. So
I’m not going to highlight all the great things about this company. But
I know what you’re thinking. Why this industry? Why now?
These companies provide products people need and use every day. It’s not
a “nice to have” product, it’s a “Must Have” product. The further
economic trouble we get into, the better these companies are going to
perform.
There’s also another benefit.
These are great inflation plays as well. Right now, nobody’s talking
about inflation. (I guess that’s what happens when gas prices fall 50
cents.) But inflation might be a real problem later on in the year. The
Federal Reserve even mentioned inflation in their most recent statement.
If inflation returns in any substantial way, these companies can pass
along price increases to their customers.
If you’re looking for good investments in a turbulent market or you’re
worried about inflation, take a look at these companies. Over the long run, I’m
sure they’ll be a nice addition to your portfolio.
• PetroChina (PTR) was upgraded to “Outperform” by Credit Suisse. This move comes despite a 40%+ correction in the price of oil.
• Kohl’s (KSS) was downgraded by Citigroup to a Hold rating. The
company’s new price target is $52. I guess year end retail sales
estimates might not be a positive as first thought.
• Friedman Billings started research coverage on a number of grocery
stores including Supervalu (SVU) and Whole Foods (WFMI).
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