The french word Au Contraire means simply "on the contrary". I like to think of myself as a contrarian which puts me in the camp that I usually try to read between the lines as I've said and look for information and news that goes against that which the mainstream media and investor accepts as the basis for all decisions related to the stock market. As I've discussed in my writings, I have been fearful over the past year in light of all the mounting "headwinds", both economically and socially that we are currently facing. That being said, and looking at the contrarian side of things, I believe some of the concerns I've menioned might finally be somewhat discounted in the market.
Specifically, it is important to recognize that stocks peak on good news, where we have those warm and fuzzy feelings and they bottom on bad news and fear (this helps to understand why most people buy stocks or houses at the wrong times). So based on my contrarian view, I believe the near term action in the stock market will be somewhat positive. Think of it this way, we all know that Washington has been fighting over the issues surrounding the debt problem (although not in the manner they've needed too, as I said in my previous blog). It is also common knowledge that we have high unemployment, problems in the housing market, a consumer who is stretched at the grocery store and gas pumps because of the increase in the cost of goods and services, and the slowing economic growth problems in Europe and China.
So what now? Well, I say buy when others are fearful and sell when others are jubilant and comfortable. The stocks and sectors I currently view as attractive are as follows:
- Companies that are ripe for acquisitions (such as Etrade and Yahoo)
- Japan, which is benefitting from the reconstruction that is occuring in leu of the Earthquake (I feel one of the best ways to invest in this idea is with the (EWJ), which is an Exchange Traded Fund, and is similar to that of a liquid mutual fund that can be bought and sold without the restrictions associated with most mutual funds)
- High yielding dividend stocks such as Chimera Investment Corp (CIM) which yields 16%, Verizon (VZ) which yields 6% and has good growth prospects, and even some natural resource companies like Duke Energy (DUK) which yields 5.4%.
- Insurance companies, like XL Group (XL) and Lincoln National (LNC), which are benefiting from an increase in annuity and stable investment products that individuals flock to during times of economic uncertainty.
- The high end and low end retail sectors. Companies such as Coach (COH) and Saks (SKS), are both benefiting from the continued spending by the upper class. Inversely, companies like Family Dollar (FDO) and Dollar General (DG) stand to do well as the lower and middle classes look to save money and shop at "discount retailers".
As stated above, there are several areas of the stock market that look attractive, but I would still avoid healthcare, the defense companies, and financials as all three of these sectors are still being held hostage by the overhanging debt and economic concerns. Internationally, I would also avoid Europe, as their economic growth is slowing at a greater pace than our own.
While I still remain extremely cautious over the longer term prospects for the stock market and the economy, I believe individuals (who are able to be flexible and move in and out of the markets), will soon have the opportunity to catch a reversal to the upside as a good amount of the negative news has been somewhat discounted in the markets. As of right now, stocks are on track for their first 8 straight down days since October of 2008, and the selling is getting to the point where it might be overdone. Because of this, I am of the opinion that the risk/reward of investing at this moment is becoming somewhat more positive, and I expect the markets to move modestly higher over the coming weeks ahead.
As always, the information and investments mentioned above do not represent a recommend to buy or sell, and a person should always consult their own professional Financial Advisor before making any decisions.
In full disclosure, I own Etrade, Yahoo, Duke Energy, Chimera Investment Corp, Verizon, and EWJ.
