It's been a tough several weeks for most investors and the volatility is not likely to stop anytime soon. Many now believe that we are in another 2008 style financial crisis that could spiral downward into a second great recession or even a depression. Concern about European debt and banks is driving the crisis and the fear is that the continued inability to stem the crisis could trigger systemic failures in the global financial system. Clearly, there are systemic risks and things could get much worse. However, there is also a lot of potential opportunity in this crisis. Some investors who bought close to the bottom or even considerably before the bottom in 2008-09 made fortunes in a very short period of time. Even if we do not see a full-blown systemic crisis or collapse of major European banks, we could see a major capitulation sell-off in global equities based on negative headlines or because at some point, investors may develop fatigue from the constant volatility and decide to get out of stocks. If Europe starts to get ahead of the crisis and contain it, we could be near the bottom now, in which case it makes sense to average into positions. On the other hand, if we see another flash crash or major sell-off due to a financial system collapse we are going to obviously see much better buying opportunities. If we do see this type of capitulation, these are some of the stocks and ETFs that might present us with superb buying opportunities. I picked these investments because they would likely have strong rebound potential in the event that investors regain their appetite for stocks. Some of the picks like the ETFs make sense because they offer diversification and that gives you a certain amount of safety, others such as US Steel (X) were picked because they would probably be oversold to bargain levels in a global crash. These are some of the names I plan to load up on if we see a global meltdown in equities:
The Coca Cola Company (KO) shares are trading at $65.10. Coca Cola is a leading beverage maker and distribution company, based in Georgia. The 50-day moving average is $68.09 and the 200-day moving average is $65.56. Earnings estimates for KO are $3.88 per share in 2011, and $4.30 for 2012. The 52-week range is $59.01 to $71.77. KO pays a dividend of $1.88 per year, which is equivalent to a 2.8% yield. Coca Cola is one of the world's most famous brands but this company owns many other well known brands such as Sprite, Vitamin Water, Minute Maid, Dasani, Fanta, and others. No matter what happens to the economy people will be consuming Coca Cola products so any big drop in the stock is a buying opportunity.
United States Steel Corp (X) shares are trading at $21.62. United States Steel is a leading maker of steel products. These shares have traded in a range of $18.85 to $64.03 in the past 52 weeks. The 50-day moving average is $28.61 and the 200-day moving average is $45.44. X is estimated to earn about $1.45 per share in 2011 and $4.18 in 2012. X pays a dividend of 20 cents per share, which is equivalent to a .9% yield. The PE ratio and other valuation metrics indicate these shares are cheap. I think it makes sense to start buying now, and more heavily on any further weakness.
Google, Inc. (GOOG) shares are trading at $500. Google is a leading Internet search engine with significant global exposure. The 50-day moving average is $541.58 and the 200-day moving average is $561.16. Earnings estimates for GOOG are $35.45 per share in 2011. The 52-week range is $473.02 to $642.96. Google is an innovator and this company has a very strong balance sheet. The PE ratio is low when you consider the growth potential. Online advertising should continue to grow as more business revolves around the Internet.
Apple, Inc. (AAPL) shares are trading over $372.85. Apple is a leading maker of computers and mobile devices. The 50-day moving average is $384.05 and the 200-day moving average is $353.85. Earnings estimates for AAPL are about $27.41 per share in 2011 and $32.12 for 2012. The 52-week range is $281.82 to $422.86. Apple is a great company and will probably continue to be a solid investment for the foreseeable future.
SPDR Select Sector Technology Fund (XLK) shares are trading at $23.84. XLK is an exchange traded fund that primarily invests in technology stocks. The 50-day moving average is $65.77 and the 200-day moving average is $72.10. The 52-week range is $54.26 to $80.97. This ETF holds investments in companies like Apple (AAPL), Microsoft (MSFT), Intel (INTC) and others. Many of the tech companies in this fund have incredibly strong, cash-rich balance sheets that will allow financial flexibility in bad economic times. Technology is likely to keep growing as these companies find ways to increase productivity and meet consumer demand for new gadgets.
SPDR Barclays Capital High Yield (JNK) shares are trading at $35.27. JNK is an exchange traded fund that primarily invests in high-yield corporate bonds. The 50-day moving average is $37.57 and the 200-day moving average is $38.43. The 52-week range is $34.09 to $41.32. High yield bonds are typically issued by companies that do not have the highest credit ratings. Since these companies are deemed to be higher risk, these types of bonds can drop in value when the economy enters a recession. Junk bond values dropped substantially in the last financial crisis and they have been dropping rapidly in the last few weeks. However, a big decline could be a solid buying opportunity and that is why I made this pick.
SPDR S&P 500 (SPY) shares are trading at $112.50. SPY is an exchange traded fund that is indexed to stocks in the S&P 500. The 50-day moving average is $118.09 and the 200-day moving average is $126.79. The 52-week range is $107.43 to $137.18. This is a solid pick because it offers a high level of diversification, and that provides safety. This is the best way to play a rebound for risk-averse investors.
SPDR Select Sector Energy Fund (XLE) shares are trading at $59.06. XLE is an exchange traded fund that primarily invests in energy stocks. The 50-day moving average is $65.77 and the 200-day moving average is $72.10. The 52-week range is $54.26 to $80.97. This ETF holds investments in companies like Exxon Mobil (XOM), ConocoPhillips (COP), Chevron (CVX), Apache Corporation (APA), and others. In the short term, oil prices could drop further, but in the long run, the demand for oil will grow as the world population increases.
Data sourced from Yahoo Finance and Stockcharts.com. The information and data is believed to be accurate, but no guarantees or representations are made.
Disclosure: I am long X.
Disclaimer: Rougemont is not a registered investment advisor and does not provide specific investment advice. The information contained herein is for informational purposes.