This selloff has left everyone speechless and motionless. And I've lost money right along with you. With so much global liquidity, the market will continue to whipsaw. Good investors know chasing it isn't the right answer. Let's stick with the facts, not our emotions, and act:
1. In the domestic industrial sectors, demand for capital expenditures is slowing, but certain backlogs will not disappear.
In my last article, I discussed why I shorted Boeing (BA), a very short-term trade -- I read Fedex (FDX) was pushing off their orders. While that was a near-term trade (definitely not a long term one) because investors were only focused on U.S. aircraft demand at the time, this does illustrate one example of many where those companies with large backlogs can be vulnerable to cancellations.
Not all companies are vulnerable though. Getting back to Boeing, while the commercial U.S. demand may slow, the company will continue to have strong demand for aircraft internationally, in the defense sector, in their parts and maintenance businesses, and so forth. Over the long term, BA is a good buy at the right price. Please keep that in mind as the valuation becomes more attractive here. I have a similar recommendation for Jacobs Engineering (JEC). The company has plenty of exposure to the infrastructure and energy sectors. I don't see a lot of cancellations heading their way.
2. Those with high leverage are in trouble.
Companies like Smurfit-Stone (SSCC) are highly levered and pricing is unlikely to improve in the container (cardboard box) business. Bowater (BOW) is experiencing a secular decline in their newsprint division (which makes up the majority of their revenues). Where you see high fixed costs and high leverage, consider putting on shorts for the longer term.
3. Gold is still hot.
I can think of no better way to discuss gold than to refer to to Thomas Tan's articles. He does a great job and like him, I am very bullish. For some companies, gold production is expanding and cash flow will, too. Please refer to my article ($$) on Buenaventura (BVN). I continue to hold this stock.
4. Short true commodities: Steel
While raw materials such as copper, gold and iron ore are fixed in the short run, steel can be made at any time and supply is outstripping demand at this point. The fixed costs are so high for many of these companies that they must continue to produce steel and prices will suffer. My recommendation is to short companies with the smallest supply (who cannot compete with the giants when times get tougher). That's why I'm short Steel Dynamics (STLD). And I may not stop there.